Comments on: Stock Market Misconception – Going Down vs Gone Down

By: ObliviousInvestor

ObliviousInvestor — Wed, 06 May 2009 16:29:53 +0000

Aaron: You’re right. That particular paper only applies to individual stock prices.

Also, any other studies I recall reading tend to analyze the existence (or lack thereof) of momentum over periods of greater than one day. For example, they show that there is little correlation of market movements from month to month or year to year.

You may be correct that there is momentum from today to tomorrow.

By: Aaron

Aaron — Wed, 06 May 2009 15:41:33 +0000

Admittedly, I didn’t read through the entire paper, but it seems to apply to individual common stocks. Does it also apply to market movements as a whole?

By: ObliviousInvestor

ObliviousInvestor — Wed, 06 May 2009 02:34:23 +0000

Aaron: The most famous research that I’ve encountered regarding the topic was by Eugene Fama. You can find it here:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=321524

Since then several studies have been done (just do a few searches on SSRN) that confirm the same thing.

By: Aaron

Aaron — Wed, 06 May 2009 00:38:00 +0000

Is there really no correlation between market movements day to day? I’d imagine then since so much of market movement is behavioral, that a pack mentality would set in. As you said, the fact that most people get their data on a delayed basis would indicate that their reaction is also delayed. Hence when they see major sell-offs, they want to join the selling frenzy. Of course they could also respond in a contrarian manner and buy. Either way, I’d be reluctant to say that market movements are not affected by the previous day. I would admit that they are unpredictable based on prior day’s trading though.

By: Ryan @ SpendOnLife

Ryan @ SpendOnLife — Mon, 04 May 2009 22:12:16 +0000

I think your age plays a role in this as well. I don’t know whether or not the market is going up or down in the next months, but I am pretty confident it will by higher than it is now at several times in the next 15 years. So if you are under 40 buying into the market now seems like a reasonable risk.

By: ObliviousInvestor

ObliviousInvestor — Mon, 04 May 2009 12:17:06 +0000

TStrump, he plans to cash in all of his stocks once he retires?

What you bring up is a fascinating topic, though. It’s been discussed in several places over the last decade. It’s true, GenX and GenY don’t have the financial resources to buy all the stocks that the Baby Boomers will be liquidating unless they do so at reduced prices.

What does appear to be happening, however, is that demand from international buyers has been increasing sharply. In other words, investors in India and China are buying growing portions of our stock market. (Up to you whether that’s in fact a good thing.) Jeremy Siegel’s The Future for Investors has a very thorough discussion of this topic. It’s pretty fascinating.

By: TStrump

TStrump — Mon, 04 May 2009 05:53:49 +0000

I agree, it’s difficult to time the market.
With passive investing, I definitely plan on investing in some index funds for the long term. I’m just not that good a stock picker … yet.
I believe the market will rebound very soon and will rally into next year, but I also feel there will be a final crash or adjustment by 2010 as boomers begin to retire.
Why? I have a friend who is 62 and is retiring soon. He plans on cashing in his stocks by late next year. What if every Boomer does this?

By: Chiko777

Chiko777 — Sun, 03 May 2009 23:40:57 +0000

The stock market has already gone down and has starting making it’s move upward (since March). I have been buying and accumulating share since then. We are out of the reccession, most people don’t know that but will soon find out come July.

People are always late to the seen…that’s why they always wonder why they can’t seem to predict where the market is going!

By: MoneyEnergy

MoneyEnergy — Sun, 03 May 2009 06:50:41 +0000

I like the distinction you make between what the market *just did* vs. “what it’s doing now.” You’re right, we’re not on the trading floor (though some of us have real-time electronic trade desks, right?), so we usually only have 15-minute delayed quotes. I don’t know enough about the theories behind market “momentum” to argue one way or the other. But I just buy based on current needs and what I know about the fundamentals. Well, I also *try* to buy on dips.

By: i s rao bhopal

i s rao bhopal — Sat, 02 May 2009 04:52:14 +0000

I read the article. It is forthright, and convincing too. I wish to have his comment on the following:-
1. Market discounts the news before the majority even come to know.
2. it is being talked that just when elections get completed or around this time, market will dip by 1000-2000 points.
3. Technical charts with help of Moving averages, do predict the trend on past period behaviour. I am sure, it is scientific too.