You are both right, of course. However, an observation from my experience, if I may, which may add a shade or hue to the color that you've already painted the market in.
I began thinking that the Broad Market, and in particular the Large Cap, Blue-Chip type stocks had no bearing on a gold exploration play in, say British Columbia, Indonesia, Ghana or South Africa.
And it is reasonable to think this way, since the fundmentals ARE NOT usually related. That is, Gold and lots of it, is still worth a lot.
The problems begin, though, when the following is considered:
1. Herd mentality DOES have an impact when things get "scary" in the overall markets. For instance, if you have $ 200,000 you are managing, and $ 100,000 of it is in a smattering of Mutual Funds, $ 50,000 is in Bonds and $ 50,000 is in Speculatives, what do you imagine happens to your outlook?
Well, for one you won't make money (much) in Bonds when interest rates are rising.
2. At the same time the general market will have a tendency to pull-back, or at least raise your fears that it will, so you are not too comfortable with the $ 100 K in your Mutuals.
3. Suddenly, your "mad" or "high-risk" money is not only the $ 50,000 in your Speculative stocks...you perceive it to be in the Mutuals as well, and perhaps ALL OF IT suddenly gets viewed as "at high risk".
4. So, if you reason that your Mutual Fund money is meant for long-term holding, you might resolve to not worry about and ride out any interim downturn, stoically. Nevertheless, you start to feel less and less willing to watch the sometimes dramatic fluctuations in your Speculative money, and might even reason that if there is a downturn in the general market and your Mutuals, perhaps you should be parking all of your money in the cyclicals that perform best in this environment.
5. Fact is, the scared money tends to flee to "safety" in the Blue Chips, even if the Dow is slipping.
6. It thus makes it harder to raise financing at higher levels in the juniors and this puts a lot of plays which are "story-based" only, i.e. they don't have a bankable feasibility study, only promise and potential.
7. Moreover, it is Buying that is required to move a stock. Selling, or the desire to sell, always occurs...for various reasons. This could be low volume stuff, like when you invested $ 3,000 in the hopes that you could double it and buy your 16 year old a $ 10,000 car instead of a $ 7,000 one. Or a sudden crisis in the family means you need to take an upaid leave from work...many, many reasons why people from time to time decided they'd like to get their hands on a few thousand dollars.
Buying, however, is when demand is created to the point where enough people want in that they consume the Selling quickly and have to entice those that don't have any pressing reason to sell, into selling. This is just that much tougher to do, when A) you've already got a fair amount at risk in the Bluer Chip stocks, and B) when you might want to use the temporary downturn in the market as a chance to add to your Bluer Chip portfolio at "relatively" cheap prices on a Microsoft or Merck or whatever.
MY POINT? As much to my chagrin as it has been, I have found that the junior exchanges do in fact suffer when the Broader and Bluer markets are getting shellacked.
This doesn't however mean that selected stocks can't completely blow away to higher levels amidst all of this. Many, many do...but the Compositie Index and thus a larger percentage of the high-spec plays are restrained in this environment.
The good news...?...they always rebound too. |
