Investools

Last Saturday, and I got up early and drove down to New Haven, CT, for an Investools.com workshop. was right: it certainly had some of the same format you’d expect from a cult or a pyramid scheme — invite a friend, schedule a 2-hour block, run long, discourage questions, keep pushing the product, pitch a special deal if you sign up today.

On the other hand, what they’re offering is investor education. In the introductory class, they explained some of the basic principles of the market, some of which were obvious (buy low, and sell high [yeah, yeah duh])… but some of which were not so obvious (huge investors like banks and pension funds cycle their money through several industries over periods of weeks, and there are ways to track this movement of money… so as to get in on the rising tide, and get out on the falling tide). I enjoyed myself thoroughly, and I decided to take their two-day class, which will run today and tomorrow.

and dad’s thoughts…
On the other side of this, my dad has been an investor for thirty-six years, and he told me yesterday that we are in a bear market, in a recession. A bear market means a flight to quality and a general depreciation of stock value: investors look to protect their capital by moving it into safe and prosperous companies, and the market as a whole loses a huge amount of value. A recession, as defined by the National Bureau of Economic Statistics or something like that, is two consecutive quarters where GDP is falling. But the NBES only defines the recession AFTER it’s happened. Anyway, that’s not important. What is important is that we have not had a serious bear market and a serious recession at the same time in about twenty years.

So most of the financial managers have not been in business long enough to have seen this sort of market before. We’ve been in a period of sustained growth for all this time. The folks running the economy have never had to manage a lot of money in this sort of market before. As a result, there are going to be a lot of people who think, “this is the lowest the market is ever going to get,” and they’re going to start buying back into the market when they see surges, like we did on Tuesday and Wednesday. But the recession is going to push prices back down again, naturally, because the economy as a whole is sluggish and unresponsive to direction. These swift rises in price, followed by sudden falls, are called recovery rallies, and are a natural part of bear markets. This is managers trying to rush into new positions and be leaders in the market, but not having the investor confidence to really get the market going again. It is, in other words, managers being dumb with someone else’s money.

We are unlikely to be anywhere near the bottom yet. Hold onto your hats, people.

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