Surely everyone has seen and been amazed by the tremendous swings in stock market indices over the past several months.  In a single day, markets will be up several hundred points at the open, down by even more in the afternoon, and finish up by over a hundred points. Scary? yes.  Confusing.? Yes. Here is a viewpoint that might help. With the incredible new technology, enormous numbers of shares of stock can be purchased in nanoseconds. Because of the huge volume traded, small movements can represent an awful lot of money. Since trading costs for sophisticated traders are so low, they can move in and our of stocks with impunity. So this has become a traders market, not an investors. How does the average investor, without the sophisticated technology and enormous capital survive in this environment?
 
First, recognize that we now have a compressed market, with activity that formerly would have played out in a month or more, now taking place in one session.  The Fed makes a statement, then the market reacts badly (or the opposite), and the market moves within minutes.  Then the programs see a buying opportunity, and purchase millions of shares of depressed stocks in literally no time, and the market recovers and moves into positive territory, again in a very short time. Before the trading session ends profit taking may have occurred, so the market will decline again.  Up, down, up or down, up,down.  This has become commonplace.
 
If we step back from the frenzy we can navigate this turbulent environment.  Lets remember that a stock price is the expression of its value.  Is Walgreen's worth 10% less than it was two days ago, or is there some trading taking place that is reflective of small reactions rather than an expression of value.  What we have to do is take a big step back and look at longer term trends and assess measures of value. This means we have to do our homework and perform due diligence.  Is a company we are considering in a growing business, do they have quality products, strong financials? A one or two day chart of prices tells us nothing.  We need to look at a chart of at least 12-24 months to get any kind of a picture of a trend, rather than a spasm. Investors in quality stocks will still be rewarded for intelligent selections. Dividends will add to that reward, and patient investors will do well over time.
 
We can help in this process, contact us at anadolna@associatesgroupinc.com