Quote:
Originally Posted by oldtrig 
Let me see if I can make a guess. .... The big money is moving making these wild swings. The little investor who have their life saving cannot afford to move their money and therefore they get the shaft. Make any sense?
No.
The little investor like me, who does B&H&R didn't get shafted during these bumps because I didn't buy/sell anything. And if one did, to re-balance, they sold high and bought low.
I'm glad that my portfolio is higher than a year ago, higher than two years ago, and higher than when I retired.
Just so no one is confused, the long-term trend (say, 5-10 years) of the market is established by long-term factors, such as the health of US companies, their profitability and the stability of the economic environment. There can be medium-term trends which cause bubbles, such as the tech bust, and (theoretically) the housing bubble. And short-term swings that are largely controlled by technical factors. Technical factors is a nice, collective term for people who know and understand market swings through such things as chart reading (or tape reading, if you are older). This technique is used by a relatively small number of people, but people that usually with a lot of money and who have been around the market a long time. They have studied and learned about how the short term swings in the market work.
It is these chart readers who make, manipulate and profit from short term swings. Any one of them who gets interviewed on business news is going too put a spin on the news that temps the average investor to buy or sell stock at the wrong time.
The rating downgrade by S&P was a perfect storm for these professional day traders (and people like you who understand the game). The moment the news comes out, the day traders sell the market short... knowing the market will fall on Monday. And yes, many average investors did sell on Monday; and the market crashed. The day traders won with their short sales.
Most professionals know the market will rebound quickly, but exactly how quickly and to what level depends on other technical factors, such as the trading volume. Is the public buying back in the market? Then traders will start to buy in too - but not so fast as to stop the upward trend. A half-way rebound, accompanied by slow trading volume will likely mean the market wants to drop back and think a little before resuming growth. On and on it goes.
The average investor who tries to trade the market looses money chasing trends. What is actually happening is not gambling, it is a complex kabuki dance that the professionals profit from. But it is the same idea as gambling to the both the amateur and professional gambler. The pro has seen it all many times before and normally will not loose. The amateur gambler will loose just as fast as the amateur investor.
For someone who is sophisticated in the market, like you, can use this opportunity because it is an obvious time to readjust your portfolio when the market is down. "Whee, time to buy" as one poster said. But you must have a lot of money to make big money if you want to buy a new car on a 5% market dip. Those are the pros.
The other strategy is to put your money in the market and don't touch it for 15 or 20 years. That works if you do your homework, and watch the long term trend. IMO, even this "buy and hold" strategy requires that a diversified portfolio to be adjusted from time to time (maybe every year) based on long term trends. Don't forget, 10 years ago Apple was getting beat up by Microsoft and small hand phones were still a rich man's luxury. You've got to readjust for those kind of changes if you want to retire early.
