Monday, May 10, 2010

The Only Real Lesson from the Dow’s Crazy Plunge

The Only Real Lesson from the Dow’s Crazy Plunge

Last Thursday afternoon, while most people were at work, the Dow Jones Industrial Average – for lack of a better phrase – fell off a cliff. It eventually recovered some of those losses, coming back from being about 1,000 points down to close down about 348 points. What makes this episode particularly noteworthy – and just plain scary – is that all of this meltdown madness happened within a matter of minutes – literally 30 minutes.

Of course, the “stock experts” immediately went to work and cable news flew into a frenzy. It was actually fun to watch and listen to all the pundits trying to figure it out for the rest of us, and I am sure additional analyses are happening at this very moment. However, buried in all the excitement is an incredibly important lesson that almost no one has pointed out, until now.

So, What Happened?

Here’s what happened: Institutional investors went on a sell-off spree of 348 points. Yes, there are reports suggesting that this entire fiasco occurred because some guy or gal at a major firm mistyped a trade as a billion instead of a million. Here’s the thing though – a typographical error of that nature would have left the sell-off in the neighborhood of 900 points, not 300 points. So this is a classic case of whether Jonah swallowed the whale or vice versa, because at the end of the day, someone definitely got swallowed.

As of the close of business Friday, the following day, all the gains investors had made so far this year had been wiped out. I must say I am not at all surprised, because that is precisely how the stock market works. If you decide to play the market, you’ve got to expect fluctuations, period!

Who Are These Institutional Investors?

In laymen’s terms, institutional investors are institutions like pension funds, hedge funds, mutual funds, and investment advisors acting on behalf of others, like yourself when you select the funds in your 401K or 403B. As you might expect, these investors are assumed to be more knowledgeable and better able to protect themselves – and you, when they’re handling your interests.

Basically they are the big dogs of the investment world. As a matter of fact, believes that watching what the big money is buying – meaning these institutional investors – can sometimes be a good indicator, as they supposedly know what they are doing.

I am sure you have heard these big cats – or Kahunas – admonishing the average investor to take a long-term view of investing, somehow simply ignoring the short-term or day-to-day happenings of the stock market. Investors are told time and again that in the long run, the market will deliver and their retirements will be just fine.

So why in the world would these financially savvy, incredibly huge professional investors have such an extreme reaction and opt out of the very market they supposedly believe in so strongly? The only logical explanation is that these institutional investors (who are probably investing your money) are nervous as heck about the stock market. So why shouldn’t you be, too?

Perhaps now you’ll begin to understand why Laser Financial Group simply links our clients’ portfolios to the stock market. That way, when the market is up, they make money – up to a cap – but when days like last Thursday, Friday, and God only knows when in the future happen, they do not lose even a dime.

It’s true that life brings much uncertainty with it, but your retirement is one thing you can count on, so it behooves you to introduce some certainty into your investment strategy, rather than leaving things in the hands of the open market, hoping that in the long run, whenever that is, you’ll be just fine.
For your free consultation and assistance in clarifying the certainty of your financial situation at retirement, please call us at 301.949.4449 or visit us on the Web.

No comments:

Post a Comment

Chime in with your comments or questions: