Trade stock
There is something mystic about stocks. It doesn't follow hard rules and it said that sleepers are the most advantagious lot. The market is in the dumps and everyone is headed for the exits whats a smart investor to do You might consider going on a shopping spree for discounted stocks.
When the markets are down and the mood pessimistic, people tend to sell even if there is no specific reason to let go of an individual stock.
This common trading mistake costs investors dearly. When the talking heads on television and the wags in print and online begin talk of doom, many investors dump their stocks in favor of cash or other safe investments.
Rushing In
As soon as the same crowd gets excited about the market again, the cash investors rush back to the market and buy stocks.
The problem with this approach is that the investor is frightened out of the market when prices are depressed and lured back in when prices have rebounded.
In other words, sell low, buy high.
The thoughtful investor always asks why the price of a stock is moving before making a decision.
Has something changed in the company
Has something changed in the companys primary market
Has there been a negative or positive regulatory or legal change
These are not all the questions you should ask, some will be specific to the industry or sector, but you get the idea.
When you can find nothing in the answers to questions specific to the company, you look to the market.
Is this stock dropping (or rising) because the overall market is moving dramatically in that direction It can work both ways, although a down market seems to depress overall prices more than an up market raises overall prices.
Shopping Trip
If you are looking to add to your portfolio, consider a down market a great shopping opportunity. A thoughtful investor is going to buy on the potential of a company and if he or she can pick the stock up at a discount so much the better.
This investing approach takes some courage and confidence in your ability to distinguish between a stock price depressed by a down market and a stock that is fundamentally flawed.
However, if you do your homework, youll find bargains in down markets that may reward you handsomely in the future.
Conclusion:
Dont be frightened off a stock just because the overall market is sour. If the fundamentals of a company are solid, a down market may be a great time to do some discount shopping.
Capital markets in the United States provide the lifeblood of capitalism. Companies turn to them to raise funds needed to finance the building of factories, office buildings, airplanes, trains, ships, telephone lines, and other assets; to conduct research and development; and to support a host of other essential corporate activities. Much of the money comes from such major institutions as pension funds, insurance companies, banks , foundations, and colleges and universities. Increasingly, it comes from individuals as well. As noted in chapter 3, more than 40 percent of U. S. families owned common stock in the mid-1990s.
Very few investors would be willing to buy shares in a company unless they knew they could sell them later if they needed the funds for some other purpose.
The stock market and other capital markets allow investors to buy and sell stocks continuously.
The markets play several other roles in the American economy as well. They are a source of income for investors. When stocks or other financial assets rise in value, investors become wealthier; often they spend some of this additional wealth, bolstering sales and promoting economic growth. Moreover, because investors buy and sell shares daily on the basis of their expectations for how profitable companies will be in the future, stock prices provide instant feedback to corporate executives about how investors judge their performance.
Stock values reflect investor reactions to government policy as well. If the government adopts policies that investors believe will hurt the economy and company profits, the market declines; if investors believe policies will help.
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