Tag Archives: crash

The Next Stock Market Collapse: Are we There Yet?

April 3, 2016

It seems that we are entering a decisive period for the stock market. The S&P 500 is right at the top of a channel between 2,100 and 1,920. Although I don’t like technical analysis, it is pretty clear that if it rises significantly about 2,100, then a new bull market will start. Conversely, if it drops below 1,920 a major market crash may follow.

S&P 500 10 Year Chart

S&P 500 10 Year Chart

Although anyone with limited knowledge of technical analysis would come to the same conclusion, I imagine 100,000,000 would-be retirees don’t look at this chart. And even if they did, they would not be able to see its importance.

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Are you Ready for the Financial Crisis?

A wise man once wrote:

Markets top slowly and bottom quickly.

When I read this and anlyzed some of the major market tops over the last 100 years, I was surprised by the accuracy of this statement. (One major exception was the 2000 Tech Bubble, which was quite different from other market dynamics.)

S&P 500 Jan 2011 - 2016

S&P 500 Jan 2011 – 2016

The theory behind this is that the “smart money” figures out that a market is topping long before the average Joe. I’m not sure if I agree with the theory, but it does seem to me that the “stupid money” gets out way too late, after the market has dropped significantly.

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P/E10 – A Tool for Investing

Some people buy stocks or index funds and hope that they will go up. This is known as “Buy and Hope” investing. And, this is the investing strategy that virtually all financial advisors recommend. There is just one problem: it doesn’t work.

The S&P 500 from 2006-2010

If you look what happened during the crash of 2008-2009, you can see that the index went down 50%. Most people cannot stand to see their portfolio go down 50%. So, they end up selling and then missing the rally that follows. It sounds silly, but it is part of human nature.

So, what’s the solution?

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Investing And The Triple That Never Was

thirdbasePeople wonder how trillions of dollars can plummet from the stock market in a few months.

Other people wonder where their life savings vanished to.

How could professional money managers lose money?

I want you to watch this video:

The Triple That Never Was

Here’s Ryan Church, of the Mets, a professional baseball player and by all accounts a great player. He hit a triple. And he missed third base! It cost the Mets the game. (If there are any Mets fans out there, I feel your pain. I’m a Pirates fan.)

Maybe he was so happy to hit the potential game winner that he missed the bag. Maybe he grew fearful that he wouldn’t make it home. Maybe he just had a mental error.

So, how does a professional lose money?

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Leverage: The Root of All Evil? Or Another Investment Tool?

MosesLeverage is getting bad press since the market meltdown.

Traders use leverage to take positions that, if they are correct, will turn small returns into massive returns; on the other hand, a wrong move can erase their entire position.

It sounds scary and, used incorrectly, leverage can have disastrous results. But, we all have used leverage in one way or another. Whether it’s that lottery ticket you just bought, or the house you bought with a low down-payment, the philosophy holds: your small investment can leverage large amount of value. But, if you guess incorrectly, your investment can be wiped out.

But, for investors who have a high risk tolerance or a high probability of returns, leverage makes a lot of sense. In fact, for a sharp small investor, it’s one way to gain a step on the big investors and big investment houses.

In my opinion, if you know the risks and you want to use leverage, that’s your decision. What I find increasingly frustrating is that there were a lot of companies–with little or no transparency–who were (and probably still are) using leverage.

Of course, it was easy for these financial advisers to use leverage… it wasn’t their MONEY they were leveraging!

The point is, when I swing a hammer and smash my thumb, I always curse the hammer. But we all know who the curse should really be aimed at.

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