How Not to Be A Bear
A good stock market bull sees the indices like the Dow Jones Industrial Average, as a kind of rising tide that will lift all boats. But he never. Ever. Makes the mistake that whatever stock he has chosen, has anything other than its own path to take upward. Instead of seeing a stock that has an amazing, unlimited upside - a bull will see a stock that will have a certain price valuation and he will buy when it is below that valuation.
Being a bull, is slightly easier than being a bear. But not by much. Your exposure, as a bull, is to buy into something whose price can drop by the total amount you have invested. So your effective exposure is the stock price on the day of purchase. Perhaps the best part about being a bull is that usually, ( unlike bears who tend to be more solitary hunters) - you get to run with the herd . Just make sure the herd is going in the right direction.
Comments
http://profzeki.blogspot.com/2011/08/skinnerian-rats-and-financiers.html
So much for the world of rat ideas. Now translate this into the world of financiers. The European Central Bank announces that it will buy Italian and Spanish bonds and some Harvard qualified economist says that this will miraculously solve the eurozone problem. They buy shares (superstitious behaviour) and the markets go up. But then, what they had not factored in, namely the calculation of ordinary brains that such bond-buying will not solve the malaise, sets in, and the markets go down. Then some fancy statement from the Federal Reserve says that interest rates will not go up (superstitious statement that does not take into account the underlying malaise), and the market goes up again. The reality of ordinary brain calculations then sets in, and the markets go down again. Then some official in some bank somewhere announces that there is a strong possibility of printing money (superstitious behaviour), and the markets go up again. The truth is that money printing, bond-buying and low interest rates amount to superstitious behaviour; they do not solve the underlying problems. The brain’s calculations are that those who have borrowed huge sums of money to service extravagant life styles cannot pay this money back without something more radical and convincing. Hence loss of confidence sets in.
All this amounts to high-rate superstitious behaviour. And this behaviour is due to the fact that the financiers do not really understand the system that they have created.
Perhaps they should revert to much simpler systems – ones that their brains, as well as ordinary brains, understand. Then they might find that their behaviour is not so erratic after all and that there is a rationale to this apparently bizarre behaviour.
last week, however, was a dog and pony show. ;)