Why Markets Go Up And Down

Why Markets Go Up And Down

It is sometimes confusing why markets go up and down. Believe it or not, this isn’t going to be an article about economics, or supply and demand, or fear and greed.  It’s going to be much simpler than that.  And the reason it’s going to be much simpler than that is because investors tend to overcomplicate how they make their decisions in the first place.

 

Why Markets Go Up And DownI’ve heard so many different reasons for what I should buy, when I should buy, and how long I should on to it.  Some investors preach about the timelessness of gold.  Bitcoin investors are constantly siting the record highs being sent.  Stocks have a solid track record. And of course Real Estate is loved by most.

 

And you’ll hear the experts talk on CNBC, and you’ll hear news about interest rates, political events, new breakthroughs, and hot new trends.  A million hunches swirling around.  There’s so much background noise that it sounds like the humming of a busy high school cafeteria.

 

Here’s the point I’m trying to make.  If you have a million different hunches, then you have a million different investors making a million different decisions for a million different reasons.  And if you get hung up on the reason you think is best, you could be outvoted by all the other reasons that say you’re wrong.

 

So I’m now prepared to tell you the SECRET of what makes the market go up and what makes the market go down!

 

What drives the market….

Ok. Here it goes why markets go up and down  …..The market goes up when investors are outbidding each other, and they market goes down when investors undersell each other.  (Ok I lied. That’s kind of like supply and demand.)

 

But it’s really simple.  It doesn’t matter what the reasons are.  It matters what people are actually doing.  I know this seems like obvious information, but there’s actually a key lesson here.  If the market moves up or down for a million different reasons, what makes more sense?  To try and anticipate the psychology of a million different investors?  Or to respond to what they do?

 

Common Sense Investing….

Here’s something to think about.  When you go grocery shopping, do you get excited that things are getting more expensive?  Or do you get excited when you find something on sale?  Obviously a sale is preferable.

 

What goes through our mind when we find a bargain?  Sales are exciting for 2 reasons.  The first reason is that we get what we want for less.  The second reason is that we know we should buy a good deal because eventually the deal will end AND THE PRICE WILL GO BACK UP.

 

Why the heck would you get excited to be buying things that keep getting more expensive?  You have to hope that some dummy is even dumber than you, and will buy what you bought at an even higher price.  It’s the classic game of the greater fool.  It happened in the Dot Com Bubble.  It happened with the last housing market crash.  It happened with Beanie Babies.  And it happens in every market.

 

Nothing goes up forever. Anything for sale only goes up so high before people just won’t pay for it anymore.  And more importantly, investors are waiting to capture the profits they make on a winning investment.  What fun is holding onto something that’s tripled on value if you can’t sell it for a profit? So, by now, you should have an idea on why markets go up and down.

 

Markets correct.  In general markets consistently reward investors who buy assets at a discount.  And in contrast, bubbled markets create the stories investors love to share about how much they made before it all came crashing down.  In Wall Street they say “Bears Make Money. Bulls Make Money. And Pigs Get Slaughtered.”

 

Don’t be the fool who buys at the top.  If you need help finding out how to spot a good deal, take a look at how we consistently outperform in the market.

 

About The Author

herbertkoehler

I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

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