Recently I broadcast an episode of my Compassionate Capitalist radio show about the events leading up to the economic malaise we have been experiencing, the realities of the “fiscal cliff”, and some good things that might just occur in the coming year.
It prompted a question from an entrepreneur:
If the SNP goes to 700, how will this matter?
If the SNP goes to 700, what is the best way to truly know what people with money are waiting for?
Interesting question Rick. Not sure if I am the best person to answer it for a number of reasons….. I know a lot of wealthy people took their money out of the stock market when all of this mess started. The ones that think long term either took it out and have it “sitting on the sidelines” as I have said, happy with the 1-2% they might get or moving it into Bonds where the interested rates are playing to their advantage. If they missed getting out of the market when it first started to tank, they have already excited or are in the process of exiting…causing the slide itself. When it hits that mark, smart investors that are still in the market will sit and wait for the rise, because they realize the only ACTUALLY lose money if they sell at that point. Unless they need the capital loss to offset a capital gain. The people that make money on a fall like that are the institutional investors and hedge funds that play the margin and bet the market will fall so they get paid for winning that bet. But in this day and age, harder to get the “seller” for those types of bets. Hitting 700 may be the trigger that gets some of those investors on the sidelines to get back into the game.
Good companies with solid operations and profits can easily have an undervalued stock when the stock market is in a free fall—or even a flat bear market, and then when it rights itself, that stock will regain it’s value, creating a windfall of capital gains for that savvy investor. The reality is that the market goes up and down. It has and always will. Economic factors will contribute to it the start and the stop and the length of a bear or bull market, but inevitably there will be a change in course. Just as I spoke of in my radio show last Friday….no market can forever go up, nothing grows in value forever, and the reason the economic factors that later become defined as a “bubble” is by its very visual image….something that will grow until it pops by it’s own unstable nature.
If the market hits 700, and that is not to say it will or won’t, it won’t be because of a clear indicator of economic malaise or any fiscal cliff…those are contributing factors, but it will be because of the people that buy and sell and large institutional traders that are making large hedged bets that can shift a market and cause corrections in the market.
I found this interesting article that talks about the cycles and shifts of the market decades and maybe it will bring a little solace to your concerns…. http://www.tradingonlinemarkets.com/Articles/Trend_Following_Strategies/History_of_Stock_Market_Cycles.htm
AND yes it will be bad, but it won’t last forever, part of that is out of our control. And don’t let the idea of it being out of your control cause fear….. because remember fundamentally…. the money doesn’t go away. It just moves. It is all still there. The challenge for the entrepreneur is to find that investor, and convince him that his opportunity is a more profitable…and potentially safer…. investment. If the market goes to 700 and the investors that have potential to be angel investors are out of the market, along the way a light bulb will have gone off that says…. INVEST IN PRIVATE COMPANIES….you have more control over their success than you ever had in that public stock that you held that went up and down and all around.
….just one gal’s opinion.
Hope you have a Happy and Prosperous New Year.
To get the full economic assessment and story behind both the broadcast and the answer to the question, please read my (long – but thorough) article blog post on Entrepreneur Blog Space
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What is a Compassionate Capitalist – besides something we need more of?
A compassionate capitalist is someone who invests Time, Resources, Knowledge and Money into entrepreneurial endeavors to bring innovation to the market, to create jobs and to create wealth for the founders and investors. It is the ultimate trickle down economic recovery plan. Because, if you invest in building up companies that can thrive in the new economy, then jobs will follow, and income from those employed will be spent in the marketplace and those old traditional companies producing goods and services will also gain economic stability and keep employees and maybe even expand with purchase of equipment or the addition of employees. You can’t control what our politicians do. You can’t control what a President of a public company does or how the market trends will impact their value. You can’t control how the bank will value your property . YOU CAN Control if a company with innovation can build a good company that creates REAL Value and real jobs.
New Year’s Resolution….. Become a Compassionate Capitalist!