Hi Barbara.. if you will permit me to address a common error in thinking about stock prices, value and money. Within your post you said "...Besides the buy the dip mentality...in my conversations with quite successfull executives, the general attitude is of complacency. A frequent comment,e.g., is "Where else will all the money go?""
It is 'where else will all the money go?' that I'm referring to. The money dosen't have to go anywhere, stock prices can crater. This is a poorly understood concept... that for investors to have losses the money dosen't have to go somewhere else.
The simple truth is that its a bidding up and down of value (price willing to buy or sell for), not necessarily an increase in funding, that creates stock price appreciation. There is a relationship, but its not 1:1.
It may have taken, for illustration purposes, 5 million in gross additional new money to drive XYZ stock up from a price of 30 to 45. Yet it might only take gross selling of only two million shares to bring the price down to 10 if done in consecutive sell orders and no buyers come forward. It could take far less... maybe only a couple of thousand leave the stock before its bid down for a huge loss.
So too with the market in general. Money dosen't have to go anywhere, all you need is a condition of no one willing to step up to buy... then prices fall and the "value" of stocks decline.
Stocks aren't money until you sell. We have a Dow average that's been bid up to 7753.. they'll drop the value until someone steps forward and says they'll buy... or if there are more who are willing to pay more it goes up.
The reason I've worked this over so pedanticly is that I too hear over and over that same comment.. "Where else can money go..?" as if that means the presense of money insures the VALUE of what you own. It dosen't, its only the willingness of buyers and the procrastination of sellers.
Jim |
