Calm Before The Next Storm? Another Flash Stock Market Crash?
A week ago, the stock markets were correcting very nicely as the Dow was going down over 200-plus points each day. That is, until a member of the Federal Reserve Board opened his mouth and tried to comfort the people who were panicking. My view is that he should have said nothing and let the market continue to correct, because it is clearly overvalued. I just hope the FED will stop meddling, let the market do the right thing and naturally weed out the short-term stock market gamblers.
I still find it very strange that people think the stock market should go up every single day it is open—like children who think every day should be Christmas. A stock market is going to go up as well as down and when it goes down, it creates opportunities for intelligent investors who have long-term (ten years plus) view of investing.
In my view, it has stabilized but it is going to be short-lived. Stop and think; if one person can jawbone the stock market back up, then the short-term bubble created by the FED cannot have a solid foundation. The false sense of security will last only briefly before something else triggers another sell-off. With that said, I think it is a good idea to sit back and get ready to pounce as most intelligent investors are doing, just waiting to take advantage of the predictable opportunities.
Please remember intelligent investing takes time to do research, evaluation, and most importantly, to realize that it takes a very long time to produce outstanding results—time to work its magic. Here is one sure bet on how to earn good return on your money; whenever your investments have gone up a lot because everyone one is very happy, sell off at a minimum 30% and wait for the herd to panic and start to sell off. When the markets are down at least 20% from their high, and then put 70% of the cash you have back into the market and wait until they are all happy again, and then repeat the process. This is called “The Sweet Spot.”
A sweet spot is where you have most or all of your capital/original investment out and you only have your gains and reinvested dividends at risk and, if it keeps going up, you are earning money and if it goes down, you can buy more stocks, and your dividends will be reinvested at a lower value as a bonus.