Friday, September 9, 2016

The two main stock market investment strategies of individuals

One – hold their stocks and bonds and ride down with any market declines as the markets always come back.  (Many sell at the bottom).

Two – identifying a recession is coming and only then sell their stocks when otherwise would ride down with the decline.  (Good luck identifying a coming recession.  All those early warning indicators in my labels are being watched by everyone so they probably won’t work.  If people in general don't believe them as happens during irrational exuberance, then they will work.)

1a, 2a - people who earn enough more than they spend build cash and buy the dips.
Then engage either one or two.

You know investors that have dividend paying stocks that they bought at much lower prices are really really reluctant to sell them.  Their rate of return has grown as dividends were raised over the years.  Retired people especially will not want to sell this income producing source.

Most people with 401k plans and IRAs likewise are reluctant to ever sell.

Pain threshold.  Selling happens to long term investors when they just can't stand the pain any longer.  (This is often at the bottom).

It used to be that in the end, you either have faith in American enterprise or you don't.  Now, the world economy is financialized and asset classes are correlated.

But it still comes down to the same decision.  Do you have faith or don't you.

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