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The short answer is "because so many people bought on margin, and when economic factors (people not going out, not spending) made it unwise to continue buying shares at current prices, people whohad to meet margin calls were forced to let their stocks go at lower prices-- the prices someone was wiling to pay despite the bad fundamentals picture.
The volatility in prices lately is because nobody wants to risk buying, so prices fall precipitously, then hit a point where enough speculators think it might be a good risk to buy, so prices rise again until we run out of speculators, so prices crash again....Stock prices don't reflect intrinsic value. They represent willingness to buy or sell.
Keep in mind that a stock bought at $1 and held until the price goes up to, say, $2, hasn't earned you anything...UNLESS you sell it at that price. And vice versa-- a share bought at $2 doesn't lose anything for you when it falls to $1, UNLESS you sell it at that price.
All stocks are "over-priced." ...Who among you would give a friend $1000 to buy half share in his new hotdog stand when he tells you he's gong to take most of the earning every year to expand the business and return only a few cents on the dollar to you as dividend?...HIs biggest selling point is that with luck, maybe you'll find someone dumb enough to buy your share for more than $1000 some day....But that's exactly what you do when you buy shares in the market.
Effectively anyone who had a choice between paying cash or paying off a mortgage and invested the money is leveraged and buying investments with borrowed money ....no margin calls but thousands in interest in a down market
What would you do if you have a 5000 cash cushion?? pay off the equivalent debt or buy stocks?? I know you have said you dont give personal advice but still asking.
And lol, I tried this buy low and sell high in a few weeks , but that company declared bankruptcy
My portfolio must be unusual since I don't see that the market has dropped that much relative to when I bought specific stocks.
Examples
MSFT: bought in 2005 at $25/share
March 31,2020, price $157, a level it was at the end of December 2019. So what if two months of froth were blown off the top in late February and March? That is a pullback, not a bloodbath.
NEE: bought in 2010 at $52/share
March 31 price $240, a level it was at in mid-December 2019. Again, a couple of months of irrational run up (Jan and Feb) removed in a correction.
MRK: bought in 2005 at $34/share
March 31 price $77, a price last seen last April (2019). Okay, one year of up to $91 and back down to $77. With a near 11% dividend yield on my invested money, I can live with that price movement.
And so forth. Oil company shares have been pretty hard hit, but they are starting to come back as the price of oil slowly moves back up.
Not a bloodbath. More likely some inexperienced investors panicking and wanting validation for their poor choices. Buy high, sell low is what the crowd does; I suggest not following along.
It hasn't dropped enough. The Dow should be between 6000 and 8000 given today's economy.
It is not likely to unless everything simply implodes. Betting against the nominal stock market is a fools errand because it's not a level playing field. The difference between what existed before and now is the government itself is blatantly propping the market up. What seemed obscene prior to 2008 and now is now seen as completely normal. Investing is almost a sort of perverse semi-free market where the government needs to prop it up to ensure it's at certain levels because so much is dependent upon it, the middle class, the pensions, the retirees, the government bonds, the mortgage industry, lending, etc etc.
If it wasn't due to such extreme intervention, the dow would be much lower than it is today, and in the trough no doubt would be hitting the levels you're citing. But betting against the government and the fed is a dangerous game IMO. It will drop and drop hard before this is all over, but it will not stay at depressed levels for very long. If you have the means to and investment horizon for it, it is worth continuing to DCA, even at these levels IMO. The government will desperately inflate the dollar via printing, and those left holding cash will be left behind once treatments and vaccines for the viruses are developed.
My portfolio must be unusual since I don't see that the market has dropped that much relative to when I bought specific stocks.
Examples
MSFT: bought in 2005 at $25/share
March 31,2020, price $157, a level it was at the end of December 2019. So what if two months of froth were blown off the top in late February and March? That is a pullback, not a bloodbath.
NEE: bought in 2010 at $52/share
March 31 price $240, a level it was at in mid-December 2019. Again, a couple of months of irrational run up (Jan and Feb) removed in a correction.
MRK: bought in 2005 at $34/share
March 31 price $77, a price last seen last April (2019). Okay, one year of up to $91 and back down to $77. With a near 11% dividend yield on my invested money, I can live with that price movement.
And so forth. Oil company shares have been pretty hard hit, but they are starting to come back as the price of oil slowly moves back up.
Not a bloodbath. More likely some inexperienced investors panicking and wanting validation for their poor choices. Buy high, sell low is what the crowd does; I suggest not following along.
judging by original costs is not a great way of judging a decline .
when i started in 1987 100k in the fidelity insight growth model grew to 3.5 million and now it is down by 800- 900k so it sure is down a lot despite what one paid .... we go by current value since each day we stay invested we are buying in at todays prices in effect not what we paid decades ago ..
judging by original costs is not a great way of judging a decline .
when i started in 1987 100k in the fidelity insight growth model grew to 3.5 million and now it is down by 800- 900k so it sure is down a lot despite what one paid .... we go by current value since each day we stay invested we are buying in at todays prices in effect not what we paid decades ago ..
We buy in each day at that day's price? Ahhhh, not really. I think what you really mean is that one could consider making the decision each day whether or not stay in the market at that day's price. To some, selling that day would be a gain; to others it would be a loss.
If my dollar cost average (DCA) on MSFT is $17.78 (it is), then that is the average price that I paid to buy the MSFT shares that I hold. That will not change unless I buy more shares at a higher price (DCA goes up), buy more shares at a lower price (DCA goes down), or reinvest dividends (DCA goes down).
I think you missed the point of my post. I am using MSFT as an example because I really do hold shares in it. This is not a hypothetical example. (Anyone can pull a hypothetical out of the air to disprove any point. Yeah, if I had moved to Harvard in 2002 and befriended Mark Zuckerberg, I might now be a gazillionaire if I had gotten early shares in FB.)
I bought into MSFT at roughly $25/share in 2005. After buying more shares later, and reinvesting dividends, and selling some shares last April (2019), the DCA on my remaining shares is $17.78. Any sale at a price above $17.78 is a net gain; less than that price would be a net loss. We are forgetting about time value of money now for simplification.
The closing price on March 31, 2020, was $157.71. MSFT was last at that price on December 31, 2019 ($157.70). In between the two dates, it went to $190.70 in early February, its highest price. Now to some posters on C-D (not you), they see this as a bloodbath: a 17% drop from the February high to the March 31 close. Others might look at the Dec 31 price and say it was a wash over the past three months (no gain, no loss). To me, I am still in positive territory. My unrealized gain on March 31 is lower than what it was at the February high, but that is hindsight bias since no one on that date knew if the price would go higher or drop.
You and I are long term investors. For us, a 3-month period of flatness, or even a few-month drop, shouldn't worry us. Even a year or two of stagnant prices can be handled if the money is not needed right away.
My point is that the prices for many stocks have not dropped that much in terms of months. Many of my stocks sank only to levels last seen in late 2019; that is not that big of a correction in my opinion. People who cannot handle such a correction should probably not be invested in the stock market, but rather in assets that are less risky.
We buy in each day at that day's price? Ahhhh, not really. I think what you really mean is that one could consider making the decision each day whether or not stay in the market at that day's price. To some, selling that day would be a gain; to others it would be a loss.
If my dollar cost average (DCA) on MSFT is $17.78 (it is), then that is the average price that I paid to buy the MSFT shares that I hold. That will not change unless I buy more shares at a higher price (DCA goes up), buy more shares at a lower price (DCA goes down), or reinvest dividends (DCA goes down).
I think you missed the point of my post. I am using MSFT as an example because I really do hold shares in it. This is not a hypothetical example. (Anyone can pull a hypothetical out of the air to disprove any point. Yeah, if I had moved to Harvard in 2002 and befriended Mark Zuckerberg, I might now be a gazillionaire if I had gotten early shares in FB.)
I bought into MSFT at roughly $25/share in 2005. After buying more shares later, and reinvesting dividends, and selling some shares last April (2019), the DCA on my remaining shares is $17.78. Any sale at a price above $17.78 is a net gain; less than that price would be a net loss. We are forgetting about time value of money now for simplification.
The closing price on March 31, 2020, was $157.71. MSFT was last at that price on December 31, 2019 ($157.70). In between the two dates, it went to $190.70 in early February, its highest price. Now to some posters on C-D (not you), they see this as a bloodbath: a 17% drop from the February high to the March 31 close. Others might look at the Dec 31 price and say it was a wash over the past three months (no gain, no loss). To me, I am still in positive territory. My unrealized gain on March 31 is lower than what it was at the February high, but that is hindsight bias since no one on that date knew if the price would go higher or drop.
You and I are long term investors. For us, a 3-month period of flatness, or even a few-month drop, shouldn't worry us. Even a year or two of stagnant prices can be handled if the money is not needed right away.
My point is that the prices for many stocks have not dropped that much in terms of months. Many of my stocks sank only to levels last seen in late 2019; that is not that big of a correction in my opinion. People who cannot handle such a correction should probably not be invested in the stock market, but rather in assets that are less risky.
my point is people have a habit of saying that they are staying invested as a long term investor , but then they say that markets are high and they wouldn't be buying in now if others ask .
yet each day we have the option of taking our money out at these levels or leaving it in play .
when we leave it in play it is no different then anyone else first buying in that day .
our profits or losses are already reflected up to that point .
hypothetically selling your s&p 500 fund and immediately buying a total market fund is really no different than just keeping the s&p fund and leaving it in play ... so in that respect we are all kind of buying in each day .... we just may have an accumulated gain or loss trailing it . but when it falls we all feel the same loss in value
Why......lol. Because market was in a BUBBLE, that’s why. Why do you think market deflated so quick??? Remember all those STOCK BUYBACKS you all were supporting and cheering about?
Good Luck!
The markets would have dropped drastically and quickly bubble or not in response to a virus like this. One can certainly speculate that without the previous exuberant asset inflation the drop would have been less. So maybe those markets in comparison would be at similar levels today.
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