So a lot of our clients have asked us this question why the stock market is only down 5% compared to when the COVID-19 hit the world, and the market was at a ATH, all time high.
Okay so the short answer is that there is a lot of big companies being traded like AMAZON,FACEBOOK,APPLE,GOOGLE,TESLA and so on, and they keep going up.
The longer answer is that a lot of heavy players are sitting liquid right now and that scares us a little bit.
And of course a lot of stocks have been slaughtered in the process.
And some stocks have gone down from 50 dollars to 10 dollars and then jumped up to 20 dollars, so the people that owned them at 50 dollars are down quite a bit , but the people that bough at 10-13 dollars are up a good chuck of cash.
So Boeing is a typical example of a stock that went down a lot, and when the rescue package came it jumped up over 90% in a sort period of time.
So basically the stock market has a lot of smaller buyers right now , and the big elephants are sitting liquid with cash to maybe make a long game play in early September.
So when our clients ask us what they should do, the answer is quite simple, we dont know, nobody knows where the market is gonna go from here.
If we do not have a lot of Covid-19 cases in the second wave in Sep-Dec there is a big chance that the stock market will jump up again overall, and if we have a lot of cases then the market will most likely go down quite a bit.
So usually the rule of thumb is this, if you have lost 60-80% in value of the stock you own, then you should ride it our to when it goes up 20-40% and then sell.
Because there are studies that shows that more often than not when a stock goes down by more than 60% then it takes a very long time to get back to where it was at the ATH.
The expectation can be when you have a special circumstance like the COVID-19 to deal with and in these kind of special cases a stock can bounce back in a year or two.
If the underlying valuation was accurate before the special circumstance happen.
So looking 100 years back the stock market has been a good place to keep your money growing.
But in general if you time anything wrong including the stock market you can get into a lot of trouble.
But this is why the market is so up and down right now.
But there is still a lot of belief in the future and this is why the stock market is not as bad as you would think even with the Covid-19 crisis.
Mrlifeadvise.
