Is It Time to Pull Out of the Stock Market?
72Is the stock market ready to crash
Along with the optimism that comes with a booming stock market (like we have now), also comes some jitters about the possibility of a stock market crash. The Motley Fool offers an interesting look at th likelihood of a stock market crash, giving these three indicators of a coming stock market crash:
- Stock manipulation
- Using borrowed money to purchase stocks
- Excessive optimism
It is worth noting that the Motley Fool only considers the second item a true cause for concern. However, it is not so bad as one might think:
"I have to admit that this factor is somewhat troubling today. According to a recent Barron's, there is a higher level of margin debt for the NYSE and Nasdaq today than at any previous time -- $303 billion, just slightly higher than at the peak of $300 billion set in March 2000; though, factoring in inflation, its not setting any records. I'd keep an eye on this factor, but I'd measure its effect through the lens of the third factor. "
And, while optimism is high, it is not excessive. Perhaps the stock market will slow (that is normal in a stock market cycle), but overall it should not be terribly dangerous for the market as a whole.
Disclaimer: I am not an investment professional. All investment includes risk. Do your own careful research before investing, or following any investment advice.
Motley Fool Article
- Stock Market Crash?
Motley Fool looks at the likelihood of a stock market crash.
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Comments
thanks for the information, very informative.
I went to read the fool Motley's article and I felt upon this :
"Today, however, there is far less potential for manipulation of the market. A better-staffed SEC, new regulations on the books including Reg AC (requiring a greater level of disclosure by analysts), the structure of IPOs, as well as Sarbanes-Oxley (expensive, but effective) mean that whatever manipulation is going on today is largely relegated to micro caps."
As a part-time trader in highly speculative derivatives market and software IT manager (so I know also about how Sarbanes is implemented practically in Corp. ) this makes me laugh :D
So thanks for pointing me to this article: I should also write something on it - this week end only because Iwill have time to do so.
Glad this post got a lot of people talking!
Market timing is usually a loser's game because succeeding requires two difficult decisions which are two opportunities for mistakes: 1. When to get out of the market and 2. When to get back into the market. Be skeptical of anybody who says they know which way the market is going, short term. What we do know is that in the long run the market goes up.
Now, if I had a bunch of uninvested cash burning a hole in my pocket I probably wouldn't dump it into stocks all at once. The market does seem to me to be high at the moment with the Dow at an all time high. Many commentators are saying we are due for a correction. So, I might bide my time for a bit or gradually invest the cash a bit at a time on dips in the market. On the other hand, I would not sell my investments in equities (index mutual funds) especially if the are in non-IRA, taxable accounts. Selling stocks or mutual funds in a taxable account results in a taxable event and possibly as well in transaction costs which eat away at your long-run returns.
There is one possible exception to a decision not to sell--if I know that I have a big cash expense coming in the forseeable future I might sell enough equities to provide the needed cash.
As always, Ralph, your insight is on. Over time, the market generally gives returns. And, of course, diversification is important in any portfolio. All stocks is not the best way to go.
The stock market has been crashing. It's pretty obvious. The good news is it really isn't harder to make money in the stock market then it ever was. You just need to find the right system for you.
True. And you have to look for stocks with sound fundamentals that are likely to pull through this downcycle...
I sure hope it doesn't... I think the cleansing we are getting is good but what a catastrophe if would be if it did...
livelonger says:
3 years ago
An oversupply of money has been causing a lot of problems today, especially with the real estate bubble. Thank you for the informative post.