Monday, October 19, 2009

News About the Stock Market 10,000+ Rally: Reality, or Just a Whole Lot of Hype?

News About the Stock Market 10,000+ Rally: Reality, or Just a Whole Lot of Hype?

Unless you were in a coma or on a desert island last Wednesday, October 14, 2009, you know that the Dow Jones Industrial Average closed at above 10,000 points – 10,015.86, to be exact. All you had to do was jump on any Internet news site, and you’d see flashing banners all over the screen. Every news outlet had this news as their top feature.

The main point about all the hoopla – from what I gathered – was that you were losing big if you were not in the market. “We TOLD you the stock market was THE place to invest, and see, it’s back baby! You’d better get off the sidelines and get back in the game!” I wonder how many people received phone calls from their stock brokers urging them to do just that. If I had to guess, it would be millions.

Emotions Up, Intelligence Down!

Not so fast!

Look before you leap!

Don’t jump off that bridge just because all the other kids are doing it!

All this stock market hoopla is simply an emotional selling point that amounts to nothing but absolute nonsense! Of course, I will explain why like I always do, letting you draw your own conclusions for yourself and your family.

But first, let’s be clear: I would LOVE for the Dow to soar. If I had my way, it would only keep going up forever! And the US dollar would get much stronger. And those countless Americans who are without jobs because of the stock market’s woes would be reemployed. And those facing foreclosures would regain control of their situations. And the tens of millions who’ve lost significant portions of the nest eggs they worked so hard to build – especially those who have already retired or are close to it – would regain everything.

But we live in the real world. Some of this will come to pass, but not all of it – and certainly not all at once, and not simply because of a few good weeks for the stock market. I do not like fuzzy presentations, filled with half-baked information designed to manipulate people’s psyches into doing things they would not do if they had all the information.

USA Today ran an article by Sara Lepro on their website that put it this way: “Cheering erupted from traders on the floor of the New York Stock Exchange as stocks briefly moved above the psychological barrier.”

The same article quoted one Carl Beck, a partner at Harris Financial Group, as saying “People feel more comfortable and feel like there’s less risk in the market when you get above a psychological point like 10,000.”

Jack Healy’s piece in The New York Times quoted a chief technical analyst at Citigroup Capital Markets, Tom Fitzpatrick, as saying, “It’s psychological.” I hope you’re getting the drift here.

This is what’s going through most brokers’ minds right about now: “Boy, oh boy, if we can just grab hold of investors’ emotions, we can toy with them and basically get them to do anything, even when it does not make sense. Basically, we do the thinking for them.”

I have nothing against any of these individuals personally, but their perceptions of investors are very flawed.

To think that you need to get unsuspecting, hard-working Americans – or any investor, for that matter – to the point where they invest based on feelings (i.e., irrational decision-making) because they believe there’s less risk in the market, when you know that you are not presenting the full picture, is doggone insulting and disrespectful!

Always Examine YOUR Situation More Closely

It’s perfectly true that the Dow closed at 10,015.86 on October 14, 2009. But it’s also true that the same Dow was at 10,323.16 on October 13, 1999. Given a more complete picture now, do you still think you should be so damned excited that the money you invested 10 years ago is 2 percent LESS today?

The Dow is up 53 percent since March 9, 2009. But it’s also true that on March 9, 2009, it declined to its lowest level in 12 years! So do you really think you should be ecstatic about that 53 percent gain, knowing that all the gains you made over the previous 12 years were wiped out?

What I find even more interesting – and troubling – is that back in March, when investors were freaking out, the very same experts and advisors were telling investors they should be focusing on the “long-term.” More or less, they were saying that what happens day-to-day is kind’a not really all that important. Well, we just found out that “long-term” is about seven months, because now they say it’s time to dive in, based on what happened on October 14. Pretty amazing, isn’t it?

As a matter of fact, this very same Dow plummeted 33.8 percent in 2008, which is the worst drop since 1931 – that’s 77 years!

Let me explain it this way. Say you had an investment worth $100,000 in the Dow at the beginning of 2008. By the end of the year, it would have been worth $66,200 because you would have lost $33,800, or 33.8 percent. In order to return to a value of $100,000 by the end of this year, 2009, guess how much the Dow would HAVE to gain? The answer: 51 percent! So far this year, the Dow is up about 14 percent. It was at 8,776.39 on December 31, 2008, and as of October 16, 2009, it closed at 9,995.91. (Yes, you are correct. That was below the 10,000 mark – the psychological tipping point – just two days later.)

I have said this several times already, but I will keep on saying it. If you lost money in the stock market, that money is gone forever! Although other advisors may have told you they are simply “paper losses” and that you will “recover,” that’s simply not the case. You see, there is no such thing as a paper loss in investing. There really are only two ways to go: gain or lose. Period! When the market “recovers” and you start making gains again, it is entirely new money. Only someone who did not lose in the downturn will make NEW gains, IN ADDITION to their existing balance.

I hope you are beginning to see things a bit differently. I call it common sense – you have it so use it if you want to secure your future. In the interest of full disclosure, I must point out that not a single one of our clients has lost a penny on the stock market during this whole recession brouhaha. And, they are doing very well this year. You should NEVER gamble on your financial future. Check out our practical, unique approach and end your money worries today!

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