Monday, March 15, 2010

The Stock Market Is Not Always Nice: What To Do When the Market Plunges?

The safest way to beat the stock market is to not get into the stock market. According to "day traders" the best way to beat the stock market is to get in and get out quickly. The best way to beat the stock market by my Aunt Sara is to buy good stocks in good companies and hang on to them. Okay, I don't have an aunt named Sara. My nonexistent aunt did not buy Microsoft when it was a penny stock.

We have plenty of advice on the stock market. Here is a quote from Warren Buffet:

With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and market strategists are all overtalking each other to get investors' attention. At the same time, individual investors, immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned to investing for their children's education and their own retirement become frightened. Sometimes there appears to be no rhyme or reason to the market, only folly.

I would like to give you the reference for that quote but I'm not allowed to this early in the article. I have to have about six paragraphs before I can give a reference in the form of a link. I'll sneak it in later in the article.

I lived in the depression. I ate mostly beans for over a decade because of the "great depression." I don't know what was so great about it. My clothing was patched and the souls of my shoes were always flapping. Well, I still like beans, especially those I get down the street from my friend, Art, at the Mexican restaurant.

The "great depression" was caused by a huge drop in the stock market. Investors were jumping out of windows in America's large cities. Working men lost their jobs and hit the rails. We had many of them come to our door for a plate of beans and home made bread. That's good eatin'. While I was eating my beans, some folks where buying bargain basement stocks for their future wealth.

Since I'm just a hack writer, I'll digress and tell you something about the hobos that marched up to our back door. They walked a quarter of a mile past our neighbors right to our door. Our address was written on a railroad switching control box in the hobo jungle saying that a man could get fed at our address.

I talked to all of those wandering men. Most wanted to work for their dinner. Only one ever gave us a problem. Dad was home so he was allowed to come into the house and join us for dinner. Because of some scary behavior, Dad had to take him out of the house with a poker. One time a neighbor came into our house and was upsetting my mother. I took him out of the house with that same poker.

To tell you the truth, I don't know how to make money in the stock market. I've proved that many times. It seems that it is always the big institutions against the small guy. It's the specialist on the floor of the stock exchanges against we suckers. One rule is to never place a market order while the stock exchange is closed. The specialist will rob you. Instead use limit orders.

Yesterday the stock market took a hit. I'm not sure what caused it but I suspect it was Alan Greenspan again. He evidently said some negative things to Chinese investors. That made them nervous and they sold off some of their holdings. Yesterday, the experts were not sure that was the only reason for the drop.

In the mid 1980s when the market had a very significant drop, my friend, Tom, a savvy investor, jumped for joy. Because of the price drop on many stocks, the percent return on stocks of a number of stable companies had jumped to over eight percent. He quickly bought up a big bunch of those stocks and collected the dividends while the stock prices went back up again.

I think that is the key to investing during a big downturn. But what does this hack writer know about investing?

Oh, yes. You can find that comment by Mr. Buffet at http://en.wikipedia.org/wiki/Stock_market

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