Marc Cuniberti Yes, I know the real saying is “What goes up must come down”, but when it comes to stocks, “might come down” is more appropriate.
Actually, it is better said “What goes up real fast often comes down the same way” and the latest market news is a handful of stocks certainly look to be fulfilling that prognostication.
With the latest three-month market rally being heavily carried by only seven or so stocks, these particular stocks ran almost straight up without a hiccup.
Without getting into what seven stocks they were, just know their weighted average in a popular index is significant.
These seven stocks ran hard and fast. Most of their charts are literally straight up.
It got to a point where the FOMO emotion may have brought the last buyers in. FOMO means fear of missing out.
It’s usually not the best of ideas to jump into straight-up running stocks and chase ballistic prices, but many do. It’s where FOMO got its name, and likely what causes these manic stock behaviors when prices rise relentlessly and just keep rising.
Historically, prices that exhibit straight-up chart patterns can eventually come down just as hard and fast. This can occur as buyers that rushed into a stock a short time ago can then rush out all at once.
Such a thing occurred last week, as the illustrious seven stocks dropped like stones in a mass “everybody out” moment.
The stock market can be like that.
Kind of like fame, which they say can be fleeting.
One day a stock (or a group of stocks) can do no wrong, then the next day everybody bails out leaving the last buyers who bought in holding the proverbial bag of losses.
Common sense might lead you to think there is something wrong with a company (or companies) when people massively dump stock in a short amount of time.
What many people don’t realize, however, is that the stock market is a market of company stocks but not a market of companies.
What I mean by this is while the company financials and business models might be totally stable, the stocks of those companies could be in total turmoil.
Stock market prices are moved by investors, analysts, people that are business savvy and people that are not, and a whole bunch of other people around the world.
I can best sum this up by saying the market will reflect reality eventually, but its day-to-day movements are just the sum of all the beliefs of all the players in it at that moment in time.
Many people fail to realize the market can have movements of its own that can be entirely separate from what and how the companies in it are doing financially.
Put simply, don’t get too caught up in the day-to-day or week-to-week movement of a stock or a group of stocks.
I might also add the recommendation to not chase a stock if it’s running, although it’s probably a good bet many investors have done exactly that at one time or another.
For now, however, because the magic seven stocks that have been the focus of many buyers in the last few months might be falling hard, investors may be seeing some red and starting to worry.
Although no one can predict market movements at any time, it may be best to focus on just buying good companies with solid financials and sound prospects rather than follow the crowd as it ebbs in and out of hot stock.
Use patience, average in your stock buys over a period of time, do your research and if necessary, seek out the services of a financial professional if this whole stock market thing seems a bit overwhelming or just doesn’t make much sense.
And realize, sometimes it doesn’t make sense to even us professionals.
“Watching the markets so you don’t have to”
(As mentioned please use the below disclaimer exactly) THANKS (Regulations)
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. (530)559-1214. Mr. Cuniberti was voted best Financial Advisor in the County in 2021.
