stock market

Investor Types

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Often, when I write about stock market news, or other economic events, I conclude by reminding long-term investors that there is no need to overreact (or really react at all) to the current short-term events. It was brought to my attention that not everyone is a long-term investor. That’s not true, but what is true is that not everyone is solely a long-term investor. And, that being the case, perhaps it is worth me addressing other investing types and issues, here on Finance Gourmet. That sounds fair, but in order to do so, I think I need to start with the different types of investors. Different Types of Investors Long-Term Investors The most common type of investor is the long-term investor. Everyone with a 401k or an IRA falls into this category. The goal of this investor should be to construct a well diversified portfolio and then review and rebalance it regularly. The strength of this type of investor is that over time, this is a sound approach that has never failed. The weakness of this type of investor is forgetting the strength and reacting inappropriately to short-term events. This category could be broken into two sub-types, those who are only investing …

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Stock Market Down On Jobs

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The Dow Jones Industrial Average is down about 300 points right now because of a good jobs report. As the main character in one of my daughter’s shows says, “What the huh?” Jobs Good, Rates Rise? No one thing seems to move the stock market more regularly than the jobs report. As always, this new report is actually about last month. After all, it takes some time to collect and calculate the data. What makes this particular jobs report so important is its timing. The Federal Reserve Board is scheduled to meet in September. The Fed has expressed a willingness, if not a desire, to raise interest rates this year if the economy is doing well enough. Everything looked pretty good for a rate increase in September, but then the whole China market blowup thing happened and with it, the U.S. stock market took a hit, and the idea of a rate hike got a little more iffy. But, with a good jobs report, the rate hike is back on the table… maybe. You see, the jobs report was good, but not good enough to make this a no brainer. Jobs were created, but well below the 200,000 that would be …

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Stock Market See-Saw

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Yesterday, I wrote about how the stock market plunge in China and the subsequent drop in the U.S. markets was not something anyone other than short-term investors should be worried about. Typically, I wouldn’t write another article about the stock market again right away, because I believe that most people would be better off watching the markets less, rather than more. But, I couldn’t resist today. Yesterday, there was an article that included the word “Bearmageddon” suggesting that a bear market of armageddon-like proportions was in the offing after the U.S. markets closed down six-days in a row. Other articles couldn’t stop pointing out thing like the biggest drop ever, or the longest-streak of down days since whenever, and so on. Today, the markets closed up. The stories today are about the “biggest gain in almost 4 years.” Talk about whiplash. The reality is that the U.S. stock market trades, in the long-term, based upon the fundamentals of the United States’ economy. While it is true that the issues in other countries, like China, can inform potential issues in the U.S. economy, it is important to remember that those issues must be American issues, not Chinese issues. The truth is …

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China and the Stock Market

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China! Aggghhhh! Everyone panic. (And China panic again…) The Chinese stock marketing is crashing, and it’s making everyone nervous. As always, long-term investors with diversified portfolios need do nothing other than sit back and watch. I, for one, like following along the headlines. You know, the ones that swing violently from doom, to fine, and back again. What Is Happening In China? Once upon a time, China was a communist country without much of an economy to speak of. Then, the government decided it wanted to be a big world economy, and in China, what the government wants, the government gets. The Chinese government devoted billions and billions of dollars to building up new cities filled with factories, and then spent even more money subsidizing those endeavors until, everything was made in China. With a new power economy, China also decided to get the other “regular” economy things like banks, lending and even a stock market. Fast forward a few years, and the Chinese stock market has been roaring along. Then, earlier this summer, the Chinese stock market started to drop. The government stepped in and put a stop to it. Unfortunately, real stock markets eventually end up doing what they want …

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Bad News, Politics and Investing

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Here it comes… THE SKY IS FALLING! THE SKY IS FALLING! A presidential campaign is officially coming, and unofficially already in full swing. With it comes political ads, ads that make it sound certain that we are doomed, we will be doomed, or we must fix the doom. Are things really that bad? Is Washington really ruining the economy? The answer, as always, is no. Politics and Investing Do Not Mix The reality of America is that everyone, in both parties, wants the same thing: a stronger, better, bullet-proof economy. The only difference is in the ideas on how to get there. Even tougher to follow is that there is not definitive proof that ANY of the political ideas out there do what their followers think they will. Republicans think cutting taxes puts more money in the hands of businesses and consumers which boosts the economy. Democrats think government spending puts more money in the hands of business, while improving society, thereby improving the economy. Who is right? They both are. And, they are both wrong. The key to a strong economy isn’t really political at all. It is cyclical. Go back over the years and you can prove anything …

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Tech Earnings and Stock Market Moves

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The U.S. stock market is composed of thousands of stocks. Of course, when it comes to moving the overall market, some stocks matter more than others. The biggest stocks, those in the S&P 500, and those in the Fortune 500, have some of the biggest impacts on the overall stock indexes. However, in most cases, the news that comes out of those companies is relatively expected. The exception to this rule are the technology companies. Unlike, say oil companies, or big manufacturing companies, it isn’t always easy to use the economic information surrounding them to accurately predict what will happen, especially when it comes to earnings reports. And, with those same companies forgoing the usual “guidance” that other companies provide, what happens in tech company earnings can be a true market moving surprise. This week saw a negative report from industry titan IBM. IBM is not only a household name technology company, but it is also the second highest weighted component in the Dow Jones Industrial Average, commonly referred to as The Dow. The company itself is down over 5 percent so far today, and the Dow is down over 1 percent, or more than 150 points. (Also dragging on …

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Do Young People Invest in the Stock Market?

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Do Millenials Have Money To Invest? A recent Bankrate survey shows that just 26 percent of Millenials say they own any stock. That sounds about right to me. As a former financial advisor, I never conducted any official, statistically valid surveys, of course, but I did talk to a lot of people, many of them younger. Younger people, like Millenials, almost never became my clients. The feeling was mutual. You see, most younger people don’t HAVE any money, even if they are currently making it. If you graduate from college at say 22, and you get a job paying $75,000 per year, then you are doing pretty well. But, you may have student loans; you probably would like to buy a house; you might be getting married and saving for a wedding. Of course, you might also be enjoying your freedom and taking trips, buying cars, and so on. The thing is, even if you were saving 10 percent of your income that still means you only have $7,500 of investable assets after a year. $15,000 the next, and so on and so on. By the time you had even the minimum of $100,000 that makes it worth even a …

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Is The Tech Bubble Worse than 2000?

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Mark Cuban made his fortune (well, his second bigger fortune) during the first tech bubble (some call it the internet bubble) when he sold Broadcast.com to Yahoo for $5.4 billion in stock. The real financial genius of Mark Cuban turned out to be not so much in the founding and selling Broadcast.com, but in quickly and effectively diversifying his investments (including all that Yahoo stock) before the bottom fell out of the internet bubble. Is 2015 a Tech Bubble? There have been a lot of people wondering for a few years now if technology is once again in a bubble. You’ve seen the big headlines, of course. Facebook bought Instagram for a billion dollars. Yahoo paid over a billion dollars for Tumblr (even though the company was probably quickly running out of money). These days, having a zero revenue company purchased for a billion dollars is commonplace. The idea is that somehow, someway, those users are worth money, even if the current company has no idea, or even plans, to make any revenue off of them. In many ways, this is like the stock market bubble that built up in the late 1990s, when any website was considered a good …

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Why Cheaper Oil Hurts Stocks

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There is a lot of new lately about lower oil prices hurting the stock market. This comes as a shock to casual investors who are used to HIGHER oil prices hurting the stock market. If lower oil prices are good for consumers, and the consumer drives the American economy, then why would lower oil prices hurt stocks? Short-Term Stock Price Movements First, never forget that short-term stock price movements are much more about speculators maneuvering for quick profits than about the actual value or prospects of the stocks in question. One way to calculate a company’s value is it’s market capitalization which is the number of shares outstanding the company has times the company’s share price.  As I write this, for example, IBM has a market capitalization of $154.76 billion dollars. However, it’s stock is down approximately $3 per share from yesterday. That means that, theoretically, the company was worth $157.85 billion dollars yesterday. No matter what the price of oil is, there is no way that anything changed enough to make IBM worth $3 billion dollars less than yesterday. Short-term price fluctuations are the result of supply and demand. And, since a large majority of daily trades are actually between computers, …

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What Do Stock Market Records Mean?

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Both the Dow Jones Industrial Average and the S&P 500 closed at all-time highs on Friday. It seems that every week brings new record-breaking highs for the Dow and the SP500. The question is, what do all of these record highs mean. Should an average investor do anything when the stock market hits a new record? What Is a Stock Market Record High? Let’s start with the basics. While individual stocks on the stock market are going up and down based on their own merit, and supply and demand, the stock market is often reported as a single thing. What financial reporters and analysts mean when they say “the stock market,” is one of the indexes of the markets. There are numerous indexes, but the most widely touted are the Dow Jones Industrial Average and the Standard and Poors 500 index. When people say the stock market broke a record high, they mean that one (or both) of those indexes is higher than it has ever been. (You can’t invest directly in the indexes, which are just academic, mathematical statistics, but you can get close using index funds.) In a way, higher records are inevitable. Even if the intrinsic value …

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