Posts in category Stock Market →
Warren Buffett said in an interview
with Germany’s Der Spiegel, published last Saturday, that the US is “already in recession”, even though “perhaps not in the sense that economists would define it”, and “it will be deeper and last longer than many think”.
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In the recent annual meeting of the Berkshire Hathaway shareholders held last Saturday, CEO Warren Buffett was asked about the best investment idea he would recommend to an investor in his 30’s. In his own words:
I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform…and I could just go back and get on with my work.
In Part I, I discussed the two main and opposing theories of investing – efficient market theory (EMT) and fundamental analysis (FA). Here I talk about which one of these two can be thought as “correct”.
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(This post is a part of the series Basics of Finance and Investing.)
It did not surprise anyone when Warren Buffett, while recently hosting a group of business students from the University of Pennsylvania’s Wharton School (his alma mater) for a two-hour question-answer session, began by pointing out the folly of the efficient market theory (EMT). After all, his objection to EMT is as legendary as his support for fundamental analysis (FA), as the foundation for smart investing.
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Riding the boom-bust wave
A scientist colleague of mine, a quiet 52-year old fellow with mind sharp as a tack in most earthly matters, has become caught up in the same affliction that many of us get in these uncertain financial times. He wanted to time the market, to make most of the up-down-up cycles of the ongoing fluctuations.
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Market tanks on “Black Monday” anniversary
Wall Street saw a brutal sell-off today, with the major market indexes – Dow Jones, S&P 500 and NASDAQ – dropping respectively 2.64% (367 points), 2.56% (39 points) and 2.65% (74 points). The slide reflects, among other things, a continued concern about credit and housing issues, rising oil prices, falling dollar value, and uncertainly on Fed’s next move.
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Anticipating Bernanke’s next move
I generally avoid reading predictions of the government’s move every time the market hits a rough patch, as is happening now. Guessing the mind of Fed chief Ben Bernanke – if he will cut the interest rate again to soothe investor sentiment – has become as much a suspense as predicting the stock market.
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How to predict a bear market (if you can!)
Since July 19 this year, when Dow Jones Index rose to a record 14,000 points, it is down to 12,845 at yesterday’s closing (even falling below 12,600 at one point). That is almost 10% drop in less than a month, nearing the official definition of a market correction. Is this a precursor to a bear market? Here are CNN Money’s 5 ways to know:
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A layman’s take on market fluctuations
If we look at the data for a broad stock market index, such as the Dow Jones Industrial Average or S&P 500 Index, three things jump out of the page. The first one is good news – there is a strong upward trend in market movement over the entire recorded history. This means that holding onto a diversified portfolio should fetch significant gain over long term – a popular retirement strategy for many who still have several years left before hanging up their boots.
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Timing a jittery market
Now that the stock market has gotten into another volatile phase – swinging up and down in sync with jittery investor sentiment – the dooms-day forecasters and soothsayers alike have started coming out of the woodwork. There are as many advisers warning us “sell-off time is NOW”, as others saying “the bull market is still on, even though bull run may be over”.
This is also the time when a few market timers catch their lucky break. If stock prices fluctuate without any apparent regularity, by pure chance anyone can succeed once in a while in offloading just before a crash. But market almost always recovers as rapidly as it falls. Kiplinger recently noted that a timer has to be lucky not once, but twice – to get out at a high, and also to get in at the next low. Even that kind of luck is occasionally possible, but consistent market timing would be a rare feat indeed!
