Why would some investors desire the stock market to go down?

 

A Bear’s Paws

(The original of this blog was posted on May 6, 2021 at https://argifinancialgroup.com/argi-insights/.)

Why would some investors want the stock market to go down?

The U.S. stock market is near its all-time highs and many analysts suggest it’s overvalued significantly. So, the above question seems odd doesn’t it? Or is it?

Investors are optimistic. They put money at risk in hopes it will go up in value – not down. They don’t desire for the economy to decline. So why would they want the market to go down? Simply put… buy low, sell high.

Why investors might want stocks to decline in value?

On Feb. 19, 2015, $1,000 purchased roughly 19 shares of the Vanguard Total Stock Market Index Fund, which is a fund weighted on market capitalization and is the entire basket of U.S. stocks. Now, fast forward six years. $1,000 purchases less than 10 shares of the same fund – this disregards dividends and capital gains which would approximate 2% per year.

This raises the question: buy stocks at a cheaper value, or later at a much richer price? The answer of course is “I want to buy stocks when least expensive!”

The inherent problem …When is the high? When is the low?

No one rings a bell at the top or the bottom. The stock market can go to higher highs and lower lows. The lows may be temporary and minor. But they also may last several years or longer and may be severe.

History has shown that to predict the markets direction consistently over long periods of time seldom works.

So how do you invest when everything seems too high?

Investment is not speculation. In our experience, trying to time the market never works 100%. First, embrace investment strategies that have worked over long periods of time. Second, use a disciplined approach. Third, talk to an investment professional.

We believe an investment strategy that considers all available data, your risk tolerance, and a diverse asset allocation can be the roadmap to help you meet your investment goals.