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The Power of the Stock Market

April 03, 2013
Paul Andrews

The Dividend Guy Blog

10 followers
There is something very powerful about the stock market.

Something no human being can really explain or can truly understand.

No matter how low the stock market goes, it always bounces back!

It Was The End of The World… 5 Years Ago!

Do you remember your summer of 2008? I certainly do! It was part of my first “real life” experience when the market suffered from a correction. The word “correction” is pretty small in this case. I could have used the word “disaster” instead. Some of the World’s biggest banks collapsed, Lehman Brothers even went bankrupt and suddenly, GM was synonymous with General Maelstrom.

I remember the craziness, the panic and all the assumptions:

Capitalism is dead.

Banks are going to close.

This is even worse than you think it is (how could it be? It’s the end of the world???)

The Black Swan Rhetoricians were brought in mass onto Oprah’s TV show to explain how this was inevitable. Investors lost faith in the market and traded their shares for bonds by billions. The world had changed and it will never be the same…for at least 18 months, right?

5 Years Later, We are More Capitalist Than Ever

I’m sure you have read the headlines over the last month: The Dow Jones at a new peak, the S&P 500 breaking a new record. We are now aiming for new highs in the market a scant five years after the worst stock market crash in history. I can say that my first two kids have survived the end of capitalism…

Five years later, I’m asking what has truly changed? Nothing. There are absolutely no differences between the world before 2008 and the world after 2013. Only 5 years of investing turmoil and we are back to square one. The big guys on Wall Street are still overpaid; companies’ problems have been shifted to the Government who now holds the debt – only true survivor of 2008.

The capitalism movement is now stronger than ever, we don’t even hear about “Occupy Wall Street”. Money is coming back into equities and investors now realize that it’s not a few bozos who will put the system at risk.

Did You Learn Something from 2008?

If Governments didn’t learn much, I think I’ve done my homework and have some notes to share:

#1 When people panic, they are probably wrong.

#2 Diversify your investments – even something as strong as a bank can collapse.

#3 Never invest in something you don’t understand (commercial paper anyone?)

#4 Invest for specific reasons, do not speculate.

What about you, have you learned anything from 2008?


Rating: 4.7/5 (3 votes)

Comments

mocheng
Mocheng premium member - 1 year ago
Love your article, I am going to print it out and put it on my wall, to remind myself, that the end will never be the end.

Buy when everyone is fearful, sell when no one is fearful.
traderatwork
Traderatwork - 1 year ago
Leverage when you think it's end of the world. You can multiply your investment multiple times if the world did not end, if you are right about end of the world - it doesn't matter anyway. ;)
mocheng
Mocheng premium member - 1 year ago
Leverage is a dangerous game especially when you don't know when the bottom is. I will probably leverage only when the S&P PE goes to under 8.

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