WHAT DO YOU FOLLOW, WHEN YOU “FOLLOW THE MARKET”?

Many people who invest—meaning risking their financial assets—are lucky if they even have an idea as to what their portfolio’s market value is, let alone knowing “What” they own, and “Why”.  You should understand how the pieces all fit together.  Do you review what you own from time-to-time, and consider making changes—either to improve the performance of individual securities–or perhaps your personal investment goals or risk-tolerance may have changed?  As you get older, perhaps you need to take less risk, since you might not be able to earn back what you might lose.  Also, if you work with a securities professional, don’t hesitate to ask lots of questions, and don’t settle for any half-assed answers!  Make them explain any recommend changes to you–which you can understand.

An investment portfolio should be diversified; because, different types of securities—stocks versus bonds, large company to small, and various industries—are impacted differently by both economic conditions and external factors.  For instance the nuclear accident at Fukushima Daichi, in Japan in 2012, undoubtedly caused stocks dealing with nuclear power to slump, while other types of energy surged.  Likewise, fluctuations in bond yields generally impact utility companies—low yields raise utility stock values, while high yields depress them.

I generally check the markets as or before the New York exchange opens in the morning.  But, I go on to http://www.cnbc.com to see how Asia-Pacific closed first, and how Europe is doing at mid-afternoon (their time), before I consider what is moving the U. S. markets.  No doubt, wherever you are, you can check the global markets, as well!  In some cases, Asia-Pacific is merely responding to something that already hit NYC yesterday and, on the other hand, perhaps something happened in China, Japan, Australia, etc.  Likewise, Brexit or another movement of Russia toward the Balkans would generally effect Europe first.

I also check foreign exchange (ForEx) and bond yields.  The importance is not so much the actual numbers; but, if you look occasionally, trends might begin to sink in.  The key point is to be aware of major shifts.  For instance, following the Brexit vote in U. K., in June, a number of currencies weakened versus the U. S. Dollar.  At the same time, current low interest rates on sovereign debt continue to indicate a continued weak global economy.

There are so many things—both obvious and some not—that might have ramifications on “What” is going on in the financial markets—and “Why”.  I believe that the current stock market strength is a wrong move, especially when you consider the extraordinary stimulus package announced jointly by the Bank of England and Exchequer, as well as the massive march, in London, requesting another chance to vote on the Brexit.  A weakness in U. K. could impact Europe, even though Britain is preparing to leave the E. U.  And that, in turn,  could soften the overall global economy. 

NOTE:  I have linked a recent post, regarding why I question the stock market’s current strength, linked as follows:  https://thetruthoncommonsense.com/2016/08/08/given-the-current-weak-economic-conditions-why-is-the-stock-market-so-strong/.  I believe that it beings a lot of what I have written together.

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