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Your Take: Do You Trust the Stock Market?

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NASDAQLast week, I wrote about how few “retail investors,” that’s folks like you and me, have come back to investing in the stock market after the craziness of the Great Recession. The market has made significant gains, erasing the losses of the Great Recession, but many investors are still on the sidelines.

Then came word that the Japanese stock market, the NIKKEI 225, dropped 7.32% on Thursday (Wednesday night for us in the United States). It was the worst percentage decline since the earthquake and tsunami in March 2011. The fall continued into the FTSE 100 (London index), which shed 2.1%, but given better than expected numbers here in the U.S., the drop didn’t translate to anything significant here. For the year, all of the stock markets have been going gangbusters. The NIKKEI was up 50% year to date before the fall but no one (meaning retail investors) saw it coming, which adds to this feeling of loss of control.

On Wednesday, a perfectly happy U.S. stock market was up until Bernanke started talking and it ended up down for the day. The market was down to open Thursday but eventually made its way pretty close to even. For someone like myself with a time horizon of decades, these gyrations are kind of scary but with thirty years to go, they’re not that scary. But there is a feeling that I have no control over it. It makes me wonder if I can trust the stock market. I know people are telling me that investing is the path to wealth… but is it?

7% single day drops, even if it’s the NIKKEI, doesn’t give me much confidence that I can trust the stock market. Any stock market.

How do you feel about the market? Trust it? Don’t care?

(photo: credit)

{ 22 comments, please add your thoughts now! }

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22 Responses to “Your Take: Do You Trust the Stock Market?”

  1. There are few places to put your money to get a good return these days since the fed is injecting so much money into the system. That being said, I think the stock market may be nearing a correction as we have been pushing higher for some time.

  2. I take the long term view and there are so few places to actually earn anything decent that you lose money by just staying in cash due to inflation. I think we might be seeing a decline coming, or seeing the start of one, but that just means I can buy in with a bit of cash I have in our brokerage accounts.

  3. NateUVM says:

    Over the short-term (any period <5 years), I trust the market to be volotile and be 100% unpredictible.

    Over the long-term (30+ years and out), I generally trust the market to exhibit an overall upward trend, worthy of investing in.

  4. Glenn Lasher says:

    I think that the question is incomplete, but I feel that way about any question that takes the form, “Do you trust ________?” I think a better question would be one of the form, “Do you trust ________ to ________?”

    So the real question here is this: do we trust the stock market to be safe? Personally, I don’t, and never have. It’s not safe, it’s not designed to be safe, and it’s not suppsed to be safe.

    I feel that NateUVM has it exactly sopt on, and I agree with him: I trust it to be volatile for now, but to trend up over the long run.

  5. Jim, I think you know where I stand on your question: NO! When it appears the end of QE is in sight–and I think we’re just about there–I’m selling half of my remaining, not very significant, equity holdings. I have a shorter time horizon than you, however.

  6. Phil says:

    I trust in what motivates the stock market – greed. So, as an investor, you have to plan for greed: corporate greed, stock broker greed, and our own greed.

    Corporations who list on the market will do what ever they can to look as good as they can at all times to the market. Therefore, to “trust” the market, you must spend time watching what companies do and say and then how their performance matches those actions…or you can let mutual fund managers do some of that for you…and then monitor who they buy/hold/sell.

    Stock brokers are motivated by trade. Up or down, they make money. They do not make money when we just sit on ours or our stocks. So, volatility is what they are interested in. And, since they are interested in making lots of money, stock brokers are going to drive volatility when they can and then play off of it because they can. THis means thing are always going to be “better or worse than they seem” and all current trends “can’t last”, no matter up or down.

    So, I do not “trust” the market, but I trust the responses to greed.

    What that means to me currently is that the market is over-capitalized versus the underlying economics of the country/world. Japan has a long-standing problem of expecting more from their economy than it can currently deliver. Therefore, their previous runup before this week was over-sold and demanded correction. Most of the rest of the developed world’s economies are also oversold versus their fundimentals. So, I would expect that we will see a downward adjustment before year-end. Greed will determine when it starts and how deep it is. That is the only “trustworthy” part of this whole process.

  7. TD says:

    Wall Street wants us little guys to keep putting money in so they can sell higher. If you didn’t ride this thing up, don’t buy now! I trusted the stock market when I was in college in 96-2000, crash, trusted again in 07, crash. I don’t trust it any longer, especially with High freuquency trading. I know that it is a way to build wealth but I think I’d rather just pay off my house and work a few extra years.

  8. Daniel says:

    I echo what NateUVM and Glenn Lasher said: the stock market is not for short-term savings, it is for long-term investing. And as Glenn pointed out, the question is whether the stock market will go up over time, and the answer is yes, it will.

    Kurt brings up another excellent point: while I do “trust” the stock market to go up over time, I do not trust the government’s or the Fed’s ability to regulated the economy.

  9. huskervball says:

    Well, I thought about buying 100 shares of Berkshire B in December, 2012. My profit at this time would be about $2000.00. Not bad, and I consider Berkshire a long term investment. So, if you are willing to ride the ups and downs and not panic trade then yes, I trust the stock market.

  10. freeby50 says:

    What kind of ‘trust’ are you talking about? Trust that it won’t go down ever? Trust that it won’t drop 10% on Tuesday? Trust that your investment will go up steadily year over year? Trust that $100 today will be worth more than $100 in 2023?

    There are risks in the stock market. The stock market is volatile.

    I feel relatively certain that over the LONG TERM that investments in the stock market will appreciate well. Theres a small chance that might not happen. On the other hand in the SHORT term I have little confidence that I’ll make money with my stock market investments. I think its quite likey we could see a drop in value or an increase in value in short term periods. But I don’t invest in the stock market for short term periods, its a long term investment.

    I guess I trust the stock market as much or more than any other form of investment in the long term. But it does have higher risk and higher potential returns.

    If you want a safer investment then thats not the stock market.

  11. admiral58 says:

    I wouldn’t beat yourself up if you missed out. Just have to make a decision on when to get back in.

  12. elloo says:

    Bernanke needs to shut up.

  13. Shirley says:

    Since the return on our investments must be short term, we no longer invest in the volatile stock market. We did see good returns earlier in our lives, but we no longer have the time to wait for them.

  14. bloodbath says:

    It depends on what you mean by trust.
    Yes, I ‘trust’ the stock market. I trust that it is unpredictable, that it goes up and down but the overall trend is always up. I trust that people like me will never hit it big in the market because we are not inside players. I trust that those with real money manipulate the market for gain and low level investors like me don’t have a chance in hell – we make cannot compete – our money comes from our nine to five.

  15. admiral58 says:

    retail investors really need to start thinking like institutional investors. And if you can’t, hire someone that can.

  16. Shafi says:

    It’s kinda hard to say yes or no. Life is full of risks, of procrastination and mistakes. I trust the stock market if I do Okay and better. I say I don’t trust it if I am losing. We trust our human fella if proven to be trustworthy. I bought a few mutual funds, two are doing good, so far one is in negative.

  17. Donald says:

    It may go up over the long term, but if and when you actually need your money, you will need to take it out at some specific moment. At that moment the market may be in the midst of crashing or maybe not. It is ultimately a gamble, and you may think that you are an informed investor and can manage the risks, but there are too many irrational factors involved for any individual to predict. Keep some money in the market, but don’t count on it for your retirement.

  18. Frugal says:

    I trust the market. I just don’t myself in the market :)

  19. NateUVM says:

    @ Donald – That is why you need to be properly allocated regarding your risk tolerance. If you are too aggressively allocated for your investment-specific risk tolerance, then you will always stand to lose more than you can afford with respect to your investment goals.

  20. Jack Durish says:

    No. Hell, no. This is a consumer’s stock market. The price of stocks isn’t based on the value of the organizations, it’s based on what someone things they can get someone else to pay. In other words, a Ponzi Scheme


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