Another Sunday and another headline about the financial crisis troubling America, from investors in the stock market to those companies that either contributed to the crisis or have been crippled by it.
No one is particularly happy with the idea of a massive bailout (the largest intervention by the federal government in the markets).
However, no one close to the markets denies the need is there and until something positive happens, the stock market is going to be a very difficult place.
Will the proposed and amended bailout plan work? Again, no one absolutely knows for sure.
Individual Investors Where does this leave individual investors?
One of the most troubling environments for markets to handle is uncertainty.
Since the market always looks forward and stock prices are derived from expected earnings, uncertainty about the economy or the stability of the financial markets destroys projections.
When investors can’t reliably predict a company’s future earnings because the market is in chaos, the smart thing to do is nothing.
A normal strategy in a down market is to look for good companies trading at a discount.
Investing in the stock markets potentially yield higher profits. Investors must constantly keep themselves up to date on the recent stock market and news. However, investing in the stock market can prove to be a gamble as it is subject to vast fluctuations.
The reason is stock market runs on probability. Based on information &analysis, future share prices are predicted but the probability of the share prices reaching the target price is always a 50:50 chance. As there are many factors which affects the share prices of a company and this price target is predicted based on certain assumptions, if the assumptions becomes incorrect, the chances of the share reaching the target price decreases.
On the downside, stocks tend to be one of the most volatile investments. This means that the value of stocks can drop in the short term. Sometimes stock prices may fall for a protracted period.
For instance, those who put all their savings in stocks in early 2000 are probably still underwater today. Bad luck or bad timing can easily sink your returns, but you can minimize this by taking a long look and different investing approaches.
There's also no guarantee you will actually realize any sort of positive return. If you have the misfortune of consistently picking stocks that decline in value, you can obviously lose money.
But the question is how do i know when to invest and in which company should I invest. In addition, how long should I hold the stock or when should I sell the shares? This is the most difficult question to answer by anyone.
You ask any expert in the field of stock market, they will mention “Based on my analysis, I think this stock is a good investment option”. Ultimately it means, the experts predict the future movement in stock prices but it may not be 100% accurate
Considering the probability involved in a stock market, you should be careful before you park your money with any company. Do not invest because your friend / colleague is purchasing it. Don’t invest because many TV Channels and newspapers are talking about the stock.
You must have a clear idea of the shares(stock) you want to purchase. Pick a stock based on your investment objective, risk appetite and the fundamental parameters of the share (stock). Additional points to note is the liquidity of the stock ( Volumes of shares traded on a daily basis) and the volatility of the share ( the difference between the highest price and lowest price for the day).
Uncertainty in the Market
However, when you are uncertain there will be any future earnings because the economy is falling off a cliff, picking a winning stock becomes much more risky.
Investors need to know that there will be a functioning economy in the future and that markets will react in reasonably predictable ways.
Until that confidence is restored, many investors will sit on cash or cash out of stocks when they can.
It is not the responsibility of the Federal Reserve Board, the Securities and Exchange Commission, the Treasury Department or even Congress and the President to make investors whole.
It is their job to ensure the economy is on sound footing and that there is sufficient regulatory oversight of the markets to keep everyone honest. Here’s hoping the bailout restores some confidence to the economy and to the markets. Until that confidence returns, investing the stock market will remain very uncertain.
No one is particularly happy with the idea of a massive bailout (the largest intervention by the federal government in the markets).
However, no one close to the markets denies the need is there and until something positive happens, the stock market is going to be a very difficult place.
Will the proposed and amended bailout plan work? Again, no one absolutely knows for sure.
Individual Investors Where does this leave individual investors?
One of the most troubling environments for markets to handle is uncertainty.
Since the market always looks forward and stock prices are derived from expected earnings, uncertainty about the economy or the stability of the financial markets destroys projections.
When investors can’t reliably predict a company’s future earnings because the market is in chaos, the smart thing to do is nothing.
A normal strategy in a down market is to look for good companies trading at a discount.
Investing in the stock markets potentially yield higher profits. Investors must constantly keep themselves up to date on the recent stock market and news. However, investing in the stock market can prove to be a gamble as it is subject to vast fluctuations.
The reason is stock market runs on probability. Based on information &analysis, future share prices are predicted but the probability of the share prices reaching the target price is always a 50:50 chance. As there are many factors which affects the share prices of a company and this price target is predicted based on certain assumptions, if the assumptions becomes incorrect, the chances of the share reaching the target price decreases.
On the downside, stocks tend to be one of the most volatile investments. This means that the value of stocks can drop in the short term. Sometimes stock prices may fall for a protracted period.
For instance, those who put all their savings in stocks in early 2000 are probably still underwater today. Bad luck or bad timing can easily sink your returns, but you can minimize this by taking a long look and different investing approaches.
There's also no guarantee you will actually realize any sort of positive return. If you have the misfortune of consistently picking stocks that decline in value, you can obviously lose money.
But the question is how do i know when to invest and in which company should I invest. In addition, how long should I hold the stock or when should I sell the shares? This is the most difficult question to answer by anyone.
You ask any expert in the field of stock market, they will mention “Based on my analysis, I think this stock is a good investment option”. Ultimately it means, the experts predict the future movement in stock prices but it may not be 100% accurate
Considering the probability involved in a stock market, you should be careful before you park your money with any company. Do not invest because your friend / colleague is purchasing it. Don’t invest because many TV Channels and newspapers are talking about the stock.
You must have a clear idea of the shares(stock) you want to purchase. Pick a stock based on your investment objective, risk appetite and the fundamental parameters of the share (stock). Additional points to note is the liquidity of the stock ( Volumes of shares traded on a daily basis) and the volatility of the share ( the difference between the highest price and lowest price for the day).
Uncertainty in the Market
However, when you are uncertain there will be any future earnings because the economy is falling off a cliff, picking a winning stock becomes much more risky.
Investors need to know that there will be a functioning economy in the future and that markets will react in reasonably predictable ways.
Until that confidence is restored, many investors will sit on cash or cash out of stocks when they can.
It is not the responsibility of the Federal Reserve Board, the Securities and Exchange Commission, the Treasury Department or even Congress and the President to make investors whole.
It is their job to ensure the economy is on sound footing and that there is sufficient regulatory oversight of the markets to keep everyone honest. Here’s hoping the bailout restores some confidence to the economy and to the markets. Until that confidence returns, investing the stock market will remain very uncertain.
No comments:
Post a Comment