Is the market overvalued or undervalued? We have seen a reaction in May to issues that have existed all along, causing the stock market to go into a correction. Now, of course some argue that we were seeing a bear market rally and that this ”correction” is in fact a resumption of the bear market.
If you watch the markets and follow technical analysis, the simple fact is that when you see markets declining, you sell with the expectation of buying back your positions at a later date and at a lower price. The same basic technical analysis applies when the trend goes upward.
The issue for individual small investors is that most do not have either the time to watch the markets all day long, the money to be day traders or enough money to be in a hedge fund. So in times of high volatility, many people simple get disgusted at the unpredictability of the market. Take a profitable, dividend paying stock like ATT&T. Certainly nothing has changed very much in the last month or so. It is profitable and pays a nice secure dividend. Yet it has fallen with the rest of the market as external fears took control. Now, if you are holding it for the dividend and don’t intend to trade it, it really doesn’t matter since the dividend is in no real danger.
In fact, the rise and fall of many people’s investments is something they observe and worry about, but unless they are living off of them is more a mathematical exercise than a real concern. It has been shown that if you can buy when the market is down, you substantially increase your overall returns. Most small investors tend to do the opposite and that’s the pity.
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