Why do people try to guess where the bottom of the stock market is?
An Anonymous User asked:
The U.S. stock market that is…Are the guesses people are making based on emotions or is there actual data that can determine the likelihood that we have hit a bottom? (i doubt the latter is possible, as if we knew we’d all be rich) …but curious, is there a scientific way to know if the market is over or underpriced?
it’s all statistics… but in a ever changing market, that can be swayed by the actions of people at any time.. it’s all just educated guesswork.
“is there a scientific way to know if the market is over or underpriced?”
There are good quant models that depend on your economic assumptions, though you might have reasonable assumptions.
The problem is, there’s no scientific way to know when the market will figure out that it is over or underpriced.
Consider these stocks:
Allied Irish Bank (AIB), Banco de Chile (BCH), Grupo Galicia (GGAL), Excel Marine (EXM), American Steel (X), Donaldson (DCI). These companies will, sometime in the next five years, trade much higher than they trade today. If you buy any of all of them today, I can assure you you’ll have at least a 2-bagger at some point in the next five years. I just can’t tell you when, or that when they prices have doubled they won’t just go back down again.
Based on forward earnings I can assure you that these companies are underpriced, as are many others. But the price could still go down, significantly, before it goes up.
Stocks also trade on forecasts, not hind-casts. IAAW’s problem is that she’s trading on yesterday’s news. It’s a bit like picking last year’s NCAA champion to repeat in this year’s March Madness pool.
No. I don’t think so.
I believe buying stocks is like gambling. I won’t ever buy stocks again, unless if the economy is in great shape. I have lost too much money and I am very mad.
Market timers will aways be out there. Zero is the bottom (except for over-leveraged buyers)
Because they are idiots.
Look who makes these calls. They are usually mutual fund managers who cannot short or hedge well. They are generally long only and they try to come on TV, magazines, newspapers, etc, and they “talk up their book” and try to say oh, we’re 98% fully invested. We’ll I’d say they have been 98% stupid.
That has been the wrong call for the last 2 years. 99.9% of all US mutual funds are down this year (CNBC-TV).
One of many problems with most mutual funds is that their charter makes them be invested all the time. This strategy does not work in Bear Markets which we have had two in the last 8 years. And of that 8 years, were are looking at 1/2 of that time in the Bear mode.
The key is don’t take the advice from mutual funds managers. Most have no clue what they are doing.
people will always try to find the bottom because then they get in and make the most money when it goes up.
i feel the value of the stocks should be
total assets over the number of shares =value of stock
if the share price is higher than value then why buy it?
and if the share price is lower than the value, you know that if the company had to close and sell assets and give to the share holders you would make something.
it would be almost impossible to find the bottom of the stock market because there will almost always be some stocks going down.
There’s actual data one can use to determine a bottom. It’s not rocket science. It’s harder for individual stocks and easier for the market. The reason most people can’t determine a bottom is because they don’t know what they are doing ,just like they buy stocks at market tops and sell at bottoms. Why? Would you buy a 10 year car that has been running good and expect it to not need any repairs within a couple years? If you fixed a car up wouldn’t you expect it to run good for a few years? It’s common sense.
You can do the most rigorous “technical analysis” you want, but markets don’t alway perform according to technical analysis and “fundamentals.” Hedge fund dumping and just plain fear and emotion can sweep away all the “logic” in the world.
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