Training Wheels
These are exciting times we live in, particularly in the midst of the elections and the market fluctuations. Having talked about the elections enough, I want to shed some light on the other interesting phenomena of the year: the market collapse.
Since around this time last year, the Dow Jones has dropped from 14K points to a low of 8K with it now trading around 9K points, a drop of about 40%. The cause of this precipitous drop (3000 points in about a month) was the freezing of the credit markets. In a nutshell, bad loans were given (mostly originating from the housing market) and then were hedged through insurance on these loans, which were then bundled and traded as commodities on the market. It was not until recently that it became very obvious that there was no money behind any of this. Foreclosures and debt growth amongst the average loan recipient killed the momentum necessary to keep these lenders afloat. Liquidity has become a scarce thing in corporate America these days. Just like a person with too much debt, banks and other companies are now in a bind. One consequence is the selling of assets at ‘fire sale’ prices so that companies can gain liquidity, and on the other side, lenders are refusing to loan out money because they either do not have it or have no faith the money will ever come back to them. The government is attempting to fix this by opening up its wallet and providing the much needed cash and in return will own a stake of these corporations.
The point of this entry is to convince all three of my readers that we have an awesome opportunity on our hands. Each one of you should be using these next six to twelve months to save up for your first (or at least your biggest) entry into the stock markets. Not only should you be saving money, but you should be learning about the art of investing. When this recession ends, the stock market will be like Vegas where the player always wins in the long run. I have already gone and put a good amount of money into the market in case things have already hit their lowest, but I have been convinced that the worst is yet to come. I have had the luck of coming under the tutelage of what I term a ‘market guru’ who is going to teach me how to look at a company’s balance sheet and determine value, to predict market trends and recognize the formation of a bubble, and most important, how to make money hand-over-fist like he does. I have never cared much for money (or rather what it can buy you), but I know I need it and that the more I have of it, the less I have to concern myself with it in the future. So I am going to use this global downturn to make money, and I want all of you to as well.
I am going to start documenting the lessons I am learning on this journey, and hopefully we can all do a little better for ourselves.
Since around this time last year, the Dow Jones has dropped from 14K points to a low of 8K with it now trading around 9K points, a drop of about 40%. The cause of this precipitous drop (3000 points in about a month) was the freezing of the credit markets. In a nutshell, bad loans were given (mostly originating from the housing market) and then were hedged through insurance on these loans, which were then bundled and traded as commodities on the market. It was not until recently that it became very obvious that there was no money behind any of this. Foreclosures and debt growth amongst the average loan recipient killed the momentum necessary to keep these lenders afloat. Liquidity has become a scarce thing in corporate America these days. Just like a person with too much debt, banks and other companies are now in a bind. One consequence is the selling of assets at ‘fire sale’ prices so that companies can gain liquidity, and on the other side, lenders are refusing to loan out money because they either do not have it or have no faith the money will ever come back to them. The government is attempting to fix this by opening up its wallet and providing the much needed cash and in return will own a stake of these corporations.
The point of this entry is to convince all three of my readers that we have an awesome opportunity on our hands. Each one of you should be using these next six to twelve months to save up for your first (or at least your biggest) entry into the stock markets. Not only should you be saving money, but you should be learning about the art of investing. When this recession ends, the stock market will be like Vegas where the player always wins in the long run. I have already gone and put a good amount of money into the market in case things have already hit their lowest, but I have been convinced that the worst is yet to come. I have had the luck of coming under the tutelage of what I term a ‘market guru’ who is going to teach me how to look at a company’s balance sheet and determine value, to predict market trends and recognize the formation of a bubble, and most important, how to make money hand-over-fist like he does. I have never cared much for money (or rather what it can buy you), but I know I need it and that the more I have of it, the less I have to concern myself with it in the future. So I am going to use this global downturn to make money, and I want all of you to as well.
I am going to start documenting the lessons I am learning on this journey, and hopefully we can all do a little better for ourselves.
posted by Anthony Jackson at 7:03 AM
2 Comments:
Alright - either let me do exactly what you do or marry me. I don't have time to learn any of this stuff or gain some understanding of why I'm doing what I'm doing.
Good post. Although I wouldn't necessarily advise people to keep waiting (read- 3 to 6 months) prior to picking up stocks. I would say do research now, watch what the more savvy (not WB in this instance) are doing, and buy! You may lose some, but playing your cards right will be a hell of a win-win.
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