1. Money

Up or Down? Stock Market has an Another Direction

By December 4, 2008

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One of the problems facing stock investors is coming to grips with popular assumptions regarding market direction.

We are a very dualistic culture that tends to reduce decisions or options down to two – and they are often opposites.

It’s easy to view decisions as black or white; Republican or Democrat; and, for stock investors, up or down.

The reality is that many decisions involve more than two possibilities – shades of grey, if you will.

Investors tend to think in terms of the market being up or down.

When you look at day-to-day trading, the market frequently is either up or down.

However, there is another possibility that many stock investors don’t consider.

Over a long period, the market can be flat. In other words, using a common stock index as a gauge, the index may end the period very near where is started out.

For example, the Dow is about where it was 10 years ago. The Dow wasn’t flat during that period. It was down and up, for a time spectacularly up.

However, the Dow has been on a slippery slope down hill for this year with no bottom in sight.

This is not the first time either. In the period from 1966-82, the same thing happened. The market was flat, but during the 12 years, stocks were up and down.

The point is that investors shouldn’t get locked in to the idea that the market can only be considered in an up or down mode.

For long-term investors, it doesn’t do much good to hold investments for a long period if they are going to end up where they started.

Dividends can ease the pain, but blindly holding investments on the way down doesn’t make sense.

You need to keep one eye on your investments and the other on the calendar. The closer you come to that day when you need the money, the closer you must watch you stock investments.

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