What makes the Stock Market Go Up or Down?

inside-stock-market

What Powers the Stock Market? Pretty much it is all about fear and greed.

 Do not be deceived: God cannot be mocked. A man reaps what he sows. Whoever sows to please their flesh, from the flesh will reap destruction; whoever sows to please the Spirit, from the Spirit will reap eternal life.” Galatians 6:7-8

Hence the crazy reactions recently from the fears of the Coronavirus. In 1987 I was with the big bank and saw how panic investment bankers would throw out the carefully planned tables and schema we spent so much time and research to map out just to panic sell. Once this started to happen, it caused a chain reaction. Then our hedge fund managers did the same. Then the big brokerage firms picked up on the panic and sold what they can, hoping to buy it back when it bottomed out. I also played that game personally and professionally. The amount of loss I had and what I saw from my clients was especially sad. All I could do is stand by as the experts panicked and stressed. I was unable to do a thing except give some cheap platitudes of advice that it will come back. Now I know better. It did two years later to only do it again in 2008 and again now, February 2020, and it will happen again.

Dishonest money dwindles away, but whoever gathers money little by little makes it grow.”  Proverbs 13:11

What caused Black Friday in 1987? Fear and greed. The Dow plummeted an astounding 22.6%, which at that time was the biggest one-day loss in US history. It was even bigger than the 1929 stock market crash that fueled the Great Depression. Like the bank I was at, it happened with a synergy of events, the perfect storm so to speak. It all started with the government announcing a possible tax on mergers. As they were out of hand then. This was boosted by new electronic trading that sent in orders much faster, especially from the trading of risky derivatives. Then there was the misfortune of trading on index options and futures markets, where the brokerage firms were purchasing the rights to buy or sell stocks at specific rates. Then there was the “margining,” betting that the stock will go up and borrowing against the stock you already have to make that deal. Then, if that stock goes down, you are called to pay it in full, bankrupting many. His is how my multimillionaire family lost it all. This was a very bad idea that all fell apart. It took two years for S&P 500 to recover, yet many people did not.   

A sluggard’s appetite is never filled, but the desires of the diligent are fully satisfied.” Proverbs 13:4

Oops, it happened again in 2008, with the subprime housing loans. When defaults on the consolidated mortgage-backed securities started to collapse. These subprime housing loans were back by the government by the loosening of regulations to let people who can’t afford a house to get one. This fueled the rapid rise of housing costs escalated by the greed from the mortgage brokers. As loans on houses were given to too many who had no ability to pay them back. Seriously, no one saw this coming. I lost most of my investment properties at this game. I took six years for S&P 500 prices to recover. While many families did not.

The righteous hate what is false, but the wicked make themselves a stench and bring shame on themselves.” Proverbs 13:5

Yet, wise people like Warren Buffet do not play that game. He advises only buying stocks that the companies are solid and profitable and then hold them for the long term. Do not panic buy and sell. Think about why you are going to buy the stock. Pick companies that are stable, to not seek a fast return, but for a long-term value. Have valid reasons and only play with what you can comfortably lose if you are going to “day trade.” If you want safe investing, then Index Funds are best. Others advise to tie the Index Funds to a Universal Life Insurance policy as the only prudent investment as you will not lose money and they give the best overall return on your investment. This is where the billionaires have their money!

https://www.cnbc.com/2020/02/24/warren-buffett-dont-buy-stocks-because-you-think-they-will-perform.html?__source=Facebook%7Cmain&fbclid=IwAR1ZRaaJZ5DJsc5I2YTg8Ofaggr_kzy682NWoNIwN3ECIKaafb4FrxClqpY

A sluggard’s appetite is never filled, but the desires of the diligent are fully satisfied.” Proverbs 13:4

No one knows how soon the markets today will recover this time. I expect it to be much faster because the fears of the Coronavirus will dissipate as it burns itself out. Then the selling frenzy will turn into a buying flurry of lust and greed. Perhaps before the end of the year. So, hold on, or invest in something much safer, sane and with a higher rate of return.

Righteousness guards the person of integrity, but wickedness overthrows the sinner.” Proverbs 13:6

What is safe? “Indexed Universal Life Insurance.” That is right, banks put billions of their assets into these to avoid taxes and protect themselves. It is not about protecting their beneficiaries from financial loss, or that the banks will die. Rather, it is about having the leverage they need while the assets are stable and growing.

If you are in Southern California, my firm can help your family and business. Let me know; I can show you how to invest safe, biblically and prepare for your future…

 

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