Trading markets – Nasdaq/Dow Jones/London Stock Exchange/Nikkei – are reported every minute and every hour on television news channels, newspapers, social media and every other media communication channel. For many years I woke to the melodious sounds of classic FM. The news would always tell me the previous days London Stock Exchange movements. Hourly news updates at say 9.00 a.m. nearly always tell you the FTSE price movement from when the market opened that day. To be honest, the noise is deafening.
I sometimes wonder how relevant and important these updates are. They are often reported in the same anxious or hushed tones of a national disaster, but how much importance should we apply to them? Well, if you had your entire or a majority of your pension funds invested in equities and were about to cash out shortly, news of a market decline would indeed be a disaster. If on the other hand the market was on the rise, may be you would hang on ……. and hang on ……. and ……?
Rising markets are called Bulls and declining markets are called Bears. These are so named after their animal namesakes habits when attacking opponents. A Bull thrusts its horns up into the air whilst a Bear swipes its paws down.
So, unless the investor is for whatever reason wanting to cash out, how much credence should we apply to short term market price shifts?
Chris Dillow, a writer for Investors Chronicle comments that investors generally tend to trade more than they should and lose money doing so. Whether markets are on the rise or decline, they are driven by human behavioural habits. These might be overconfidence arising from overestimating market conditions or to simply having a desire to trade for trading sake.
I was amused to read that had Donald Trump left his US$40m inheritance some 30 years ago in a fund he would be worth more money today than what he has after all his deals and schemes.
The sharpest investors - whether in stock markets or property - are those who are able to buy and sell at the right time. Buying might be around when a market hits bottom but I have seen the best time to sell often is before its peak. Once the peak is attained there is only one way to go and the decline is frequently fast. Overall, the real winners are those who resist their urges for action, remain patient and generally take a medium term view in a market or sector, so - beware of itchy fingers!