Saturday, March 07, 2009

Don't Bottom Pick Stocks

Did the stock market bottom out? It is a trillion dollar question. The stocks lost nearly 11 trillion in value since October 2007 and lost nearly 2 trillion since the beginning of 2009.

It started like a shower, then became a rain, then became a thunder storm and now it is a hurricane and there is flood everywhere. The March'08 lows (caused by Bears Stearns fallout) were beaten by the July'08 lows (caused by Fannie/Freddie government takeover) which was beaten by the October'08 lows (caused by Lehman fallout) and that was in-turn beaten by the Nov'08 lows (caused by GM/Citi insolvency concerns) . People thought "That was the end of it" and breathed a sigh of relief. Optimism developed when Obama was sworn in. The stocks rose in Jan'09. Everyone thought, they missed the stock market bottom in Nov 21st, 08. Then came the huge blow in Feb'09. The marked tanked another 20% since the new year. It created new bottoms everyday.

There are two sets of people - the optimists and the pessimists. The optimists think that the bottom is reached and jump-in to see themselves in a new bottom. The pessimists wait on the side lines with their money to jump-in when the 'real' bottom is reached. But, the truth is, nobody knows what the 'real' bottom is. The pessimists are going to wait for ever. So, who wins - the optimists or the pessimists? The real winner is decided by time.

Those who are still trying to bottom pick - Good luck !