The Way I See the Stock Market

The daily wild swing in the stock market of the last few months has been very unnerving to Wall Street and Main Street. Big monies are moving in and out of the market seizing every opportunity to make money, whether that is by shorting the stock market, or chasing commodities until the last puffs. The stock market really does not seem to trade on any fundamental, especially lately. Look at Bear Stearns, it was $30 two Fridays ago, you wake up one morning, it was a $2 stock. One week later, the same group of people who "engineered" the buyout at $2 changed their minds after some investors threatened lawsuits and decided they will offer $10 instead. Can you imagine the misfortune of those ordinary investors who panicked that fateful Monday morning and sold at $2 and when they could have sold at $10 if they had waited a week. I know it is not much consolation if you had believed in the analyst's "Buy" rating months ahead and had bought Bear's stock at its peak. Even if you had not bought then but you were a buy and hold old fashioned investor and had owned the stock for many years, the crush of Bear's stock price from more than $70 a month ago and subsequent buyout at a little over $10 was still a life changing event that could cause you to start over or postpone your retirement.

I know it is not that simple, but to the men and women on Main Street who go about their daily lives working their hearts out just to keep their jobs, and their homes if they have one, this is the biggest joke!! The events of the past 6-9 months have given new meaning to stock valuation and the famous phrase "market is efficient". No, market is not efficient! Not when a stock's valuation is reduced by 95% overnight by some Wall Street raiders who used taxpayers' money to do so and when only a handful has knowledge that bad things were about to happen ahead of time and the rest of us are left holding the bag when the stampede is over. If people who made bad decisions are not allowed to fail, and those with lots of monies have more power to move the market than those who have little or none. If nationalization of failing private firm happened right under our eyes in a supposedly capitalist world and invisible hand is at work, then no, market is not efficient.

Plain and simply, Wall Street is the playground for those with big monies, and that is not 95% of us. Big monies, hedge funds with very large pools of money who have been given a freedom to run however which way they like under the disguise they provide liquidity when there is none, these funds rule the stock and the commodity markets today. Ordinary investors who work hard at their day jobs and steadfastly put their money into their 401K every month are just simply scared out of their wits today when they saw that the market was up 300 points one day, down by the same amount the next. These folks sold their stock portfolio, usually when the market is down because they are so scared they are going to lose what is left of their capital. Out of idea on how to preserve and grow their money, they put that cash into CDs, but with a meager 2% interest per annum, (thanks to the Fed's aggressive rate cut last 8 months), and skyrocketing food, energy and health care costs, they are losing whatever capital they have left no matter how hard they try to preserve it. Out goes the moral of saving for retirement. These are the harsh realities confronting working folks in America today.

I am often amazed why ordinary investor still listens to these highly paid "smart" people on Wall Street today after Enron, and recently Bear Stearns. They don't know any better than you and I do, may be they hear of things a few days before you and I because they are in the loop so to speak. However, they are out to make the most money for themselves, not for you and I!! Think about it for a moment. Remember how you would read about a Buy recommendation on a stock by one analyst, and yet another analyst would rate it a sell and a third a hold all during the same period and supposedly they were all privy to the same information distributed by the company they were writing their recommendations on. I know they are entitled to their opinions and there are many who pay a large sum of money just to receive their carefully worded newsletters and tips, but hey, has anyone ever wondered how these stock analysts and TV talking heads came up with their recommendations and questioned if there is ever a conflict of interests in what they do? Do they own the stock they are asking you to buy? Are they putting their words where their mouth is by owing these stocks? Have you ever wondered if they just might be shorting the stocks they are asking you to buy? You the investor who is in charge of your own hard earned money should do your own thorough research. You should watch the stocks you are following like a hawk, read up as much as you can on the industry, watch market trend and watch the stock's daily action (watching the tape as they say in the industry, it is the most telling part of the trend). Use your common sense, read in between the headlines and be really disciplined, take profits often and frequent.

In my humbled opinion, stock market is really about momentum, about glass half full or half empty. Most of the time, stock fundamental is only half the story. It is often simply a question of whether the stock is overbought or oversold and whether greed or fear has taken over. That is why it is often said that those who truly understand human psychology and man's propensity to run amok with greed and then fear fair better in stock trading than their peers. The technicians also do well in the market because they watch for many market trends and technical and one of which is if a stock is overbought or oversold. As for the ordinary investor who has a day job and does not have the time to closely follow the market, it is more prudent to buy sector or broad market ETFs or mutual fund and over time that investor should do equally well.

Finally, never risk any money you can't afford to lose, never lose your bread money! The famous maxim of how a stock market can stay irrational longer than one can stay solvent cannot be said frequently enough. Greed is never a good thing but when fear is gripping the market it can also present a great opportunity to make gre