1/21/2005

The Stock Market Is Falling Again

"The Dow Jones industrial average fell 68.50 to 10,47147" stated the Seattle Time's Michael J. Martinez. This is something that no investor wants to here. The Stock Market has been falling for the past several months. In the article Nervous investors push stocks lower http://seattletimes.nwsource.com/html/businesstechnology/2002156407_stox21.html, Martinez tells of how there are many companies that have not meet their projected earnings for the fourth quarter and are now lowering there projected earnings for this next quarter.

Martinez quotes Rod Smyth, from Wachovia Securities the chief investment strategist saying, "We're in a correction right now from the rise we saw since mid-October. It's perfectly natural for markets to behave this way." But what I want to know is this really normal? Could the online traders have an effect on the way the market fluctuates with extreme ups and down? I think the ups and downs come from the ability of anyone to buy and sell so easily.

3 comments:

Spencer said...

The key here, don't put all your eggs in one basket. The market fluctuates on a reagular basis it always has it always will. The key to being succeessful with these eratic market ups and downs is to diversify, and spread out your risk. The ability of anyone to buy an sell is what makes the market a viable place of growth. If the market was limited. I think the effects could be economically devastating.

Dr. Tufte said...

-1 for spelling mistakes on Luise's and Drake's comment (waived).

I think the stock market going up and down is perfectly normal.

The appropriate way to measure whether there is more volatility is with the percentage change in price rather than the actual change of 68.50. I haven't checked this against past data, but my off-the-cuff estimate is that this sort of volatility is normal.

Having said that, what really increases volatility is new traders entering the market. As we saw in the Aplia experiment, the volatility is reduced as players became more comfortable with where their reservation value was relative to the equilibrium. So, periods like 1998-2000, when a lot of new people started trading, tend to be more volatile.

taylor1940 said...

Nice article that informs us about the down fall of stock market.
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Taylor

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