Stock Market Inflation

[anthony]

Ha ha... ironically this morning, economists are now stating how over-inflated the worlds stock markets have become in the past months, stating that the capital assets behind the market don't match many companies stock prices. Company share prices are literally inflating on sentiment, hype surrounding a rumour, and then they either legitimately rise or fall when audited financials get released, coming back to match a companies real value.

The problem it seems, is that a loophole is that a company can release its financials showing a minor profit or loss, thus shares accordingly change for that company. Then the company can take years for audited results to be released, literally shuffling them into the myriad of documents so many don't even bother looking at them for comparison purposes, because by then the sentiment, rumours and hype have already affected a share price again, positively or negatively.

Pharmaceutical companies are one of the worst in this arena, as a share price inflates based on a proposed drug, however; a drug can take 5 - 10 years to get onto the market, yet the share price jumps on sentiment... then when the company releases reduced sales, the share price drops in the arse because people have already forgotten about future prospects that they gambled on only months prior.

Economists literally used that term this morning. Economists are back to gambling, just like prior to the GFC, forgetting the real world impact of their decisions into the global economies.

With the US pushing back their date for what is really, still the fiscal cliff decision that hasn't yet been made, just delayed... already the world has moved onto the next media issue, forgetting about this looming US debt issue that will flow through global markets like a freight train out of control.

 

[piratelady]

The stock market is and always has been largely traded based on emotion. People see a stock go up, they buy. They see it start to fall, they sell out of fear. They see a headline that says something good or bad and they react. There are many educated investors that research and advise people on how to trade, but for many people it is an emotional reaction.

I used to work in the industry and we would have so many clients see some headline saying something negative. Whatever the headline, it would have no bearing on their investment and yet they wanted to sell. Their desire to sell was in no way based on facts or valid information pertaining to their investments. We spent a lot of time talking people down.

The same goes for waves in the market. People see it drop considerably on any given day, get frantic and want to sell. Same with when it goes up. The problem is that they are reacting to what has already happened, not on what will. As a result, most investors end up buying high and selling low more often than not.

 

[anthony]

That was something an investor said to me when handing over cash many years ago... he said that you either trade high risk daily / in the moment, or you look for a growth over the long-term, which will have ups and downs, but overall will have some type of established percentage gain for wealth.

I've found this is just playing this game. I go for the short-term share, and establishing that 10 day holding period on all purchases has shown me the volatility such an increase can have. Most have fallen back to marginal gains over just 10 days, compared to their high percentage gain not long after initial purchase. Only a handful have maintained decent profitability, and some have gone backwards from a 20 - 30% increase.

I would not like to do this with real money, that's for sure.

 

[anthony]

Gee... and I'm reading it already this morning. It was just a matter of time. A huge sell-off due to issues in the Eurozone and other places, affecting all markets.

 

[anthony]

Well... 50bn + wiped yesterday. How much today?

 

[anthony]

The markets are really starting to kick back now, from all the over-inflating done recently.