Seriously, was I the only one paying attention in history class? The stock market crash of ’29 — ring any bells?
I know that, in the age of self-funded retirement, you really can’t avoid the stock market. But I really have trouble understanding why so many people think that they can control their investments in any way, shape or form.
Here’s the deal: I don’t trust anything that is inherently fueled by people’s optimism. And ignorance, for that matter.
The reason the market is so scary is pretty simple, I think. Bad news will depress a stock’s worth or cause stock analysts to downgrade its desirability. That causes stockholders to panic and sell off. Which drives the price down. Which causes more stockholders to panic and sell off, further driving the price down.
I know that not every stockholder reacts to a blip on the radar. Otherwise, we’d be having crashes right and left. But the turmoil over the last couple of years — up and down randomly, seemingly coinciding with what analysts predict, rather than reality — seem to bear out my theory that the stock market is mainly driven by trigger-happy idiots.
Thankfully, some people are smart enough to see the long-term picture, and so they use other people’s stupid sell-offs to buy up stock at a low price. And, if they bet right, they make good money over the long haul.
But the vast majority of people still seem to believe that every small wave is a tsunami threatening to capsize companies. And, after the (seemingly) sudden downfall of banks a few years ago, I guess I can’t blame them too much. That said, the stock market will never recover so long as all of America continues to have PTSDD — Post Traumatic Stock Downgrade Disorder.
Oh, and then there are the short sales. Where people sell stocks they don’t actually own (Hey, brokerage, can you loan me a few stocks of Acme Corp? I’m totally good for it!), get the profits and then swoop in when the stock tanks, buy up cheap shares and give them back to the brokerage.
In other words, they bet AGAINST the market. Honestly, it may be the most pragmatic thing to do in this day and age, but it leaves a bad taste in my mouth.
I just think it’s funny that we seem perpetually unable to recognize bubbles, and then we panic, wail and gnash our teeth, when it bursts. Each time, we swear to be more vigilant for the signs of a bubble next time. Yet everyone inevitably returns to the ultimate bubble — the stock market.
And that is why it terrifies me.