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I wonder though if coronavirus is additionally the excuse (or maybe "catalyst") for a correction that was going to happen sooner or later anyway. My mental mod
by bo1024 7y ago
I wonder though if coronavirus is additionally the excuse (or maybe "catalyst") for a correction that was going to happen sooner or later anyway.
My mental model of the stock market recently is a bunch of people driving too fast on the highway during a snowstorm. As conditions steadily worsen they all know they're not in control, but nobody else is slowing down so they don't either. It just takes some warning sign -- like a truck that's slid off the road -- then they'll all acknowledge the speed is unsafe and slam on the brakes together.
> Companies are already warning about significant impacts on quarterly earnings. Those are actual, real things — not people just realizing they got a little too excited.
But it's not clear (to me) the stock market prices are tied at all to actual, real things. Maybe relative prices of different companies reflect who's doing well compared to whom, but overall the market is up when people expect other people to continue buying and down when they worry they won't (both self-fulfilling prophecies). Maybe the only reason the market dips before recessions is investors expect a decrease in the total amount being pumped into the market by average people's 401k's.
- crystaldev 7y agoYou're forgetting that the stock of more than one company is traded.
- bo1024 7y agoCan you explain how that impacts my mental model / questions? Are you pointing out that some companies may be barely affected by coronavirus and some a lot?
- crystaldev 7y agoYes, and also some companies may be affected more by their own fortunes, or the fortunes of their particular industry, than by the mood of a monolithic "market."
- Scarblac 7y agoBut it seems to be accepted wisdom nowadays that nobody can pick stocks and beat the average consistently. So what a large chunk of the market ends up doing is buying index trackers or achieving the same goal by spreading investments as widely as possible.
- perl4ever 7y agoThe nice thing about indexes is there are so many of them... I read somewhere there are actually more ETFs now than individual stocks.
- NicoJuicy 7y agoI have the same thinking. I believe every 8 years there is a stock dip, the current one is already overdue. It's easy to blame Corona now, but there was already one correction coming. I think it will dip way further, since there are actual problems now also and the spread of the virus globally is not a known fact either.
- senordevnyc 7y agoBenjamin Graham / Warren Buffet have said [1] that in the short run the stock market is a voting machine, but in the long run, it’s a weighing machine. 1. Attribution is murky: https://quoteinvestigator.com/2020/01/09/market/ https://quoteinvestigator.com/2020/01/09/market/
- Joker_vD 7y ago"Weighing machine" in the sense of "in the time it takes the fat ones to thin down, the thin ones die out", or?..
- rmrm 7y agoStrictly in the sense that over time it measures something. In the short term peoples opinions matter, in the long run company performamce matters. The stock price relates to earnings and capital efficicency etc over the long haul.
- bo1024 7y agoThat makes sense for one company's stock price versus another's. But it doesn't help me understand how the average behaves...