Stock Market 101

Stock Market Basics

[UPDATE : December 2011 - it seems that Jack Bouroudjian got it wrong back inJanuary ! Despite a lot of swinging and flip flopping the stock markets have basically gone nowhere throughout 2011. January 2011 - Jack Bouroudjian who has been negative on the stock market for a very long time, has finally turned bullish (positive) saying 2011 will be a very good year for stocks !]

The stock market is a fine way of losing money ! Take it from one who knows. Back in 2000 when the dotcom bubble went ' pop ' we were told that dotcoms were a waste of space and that we should never have invested in them and that it served us right for thinking we could get rich quick fromstock trading The right thing to do and the thing that the 'experts' were doing was to invest in solid blue chip companies that were making a profit and that paid dividends. Companies like Bank of America,AIG, Lehmans. Bear Sterns, Royal Bank of Scotland, Barclays Bank, USB, etc... All of which have now lost between 90% and 100% of their value and if you had any money invested in them then you are now well and truly stuffed. Your investments have lost as much as the dotcom rubbish.

Even legendary investor Warren Buffet has lost over $20 billion dollars in a year - that takes some doing for the smartest investor on the planet. He also admitted that he made some mistakes last year, like buying unnamed Irish banks that have since lost 83% of their value.

The moral of the story is that no-one knows what they're doing - the stock market was basically a giant Ponzi scheme which worked as long as it worked and no-one found out that the emperor had no clothes but once things started to fall apart it was like the famous domino theory the USA was so worried about in Vietnam back in the 60s. One domino fell and brought down all the others. Or as Warren Buffett puts it "when the tide goes out you find out who is wearing no shorts".

As the dominoes fell they first revealed the incompetents and then the crooks like Bernie Madoff and Allen Stanford (allegedly) and others. The crooks have caused a lot of people to lose a lot of money but they did not cause the crisis and they are a mere drop in the ocean of the trillions that have disappeared.

Where are the Stock Markets Headed?

So what next ? The DOW has fallen from over 14,000 to under 7,000 injust over a year and although it has bounced in recent days, there are very few people who think that it is over. Predictions range from just under 6,000 on the DOW to 4,000 and after that we shall see. [UPDATE 4 - since March the stock markets have gone almost straight up and many people are saying it has gone too far too fast and are expecting it to come back down again, some are even expecting it to go back down below the March lows -so basically it is still a great guessing game !]

One person who gets his predictions right more than he gets them wrong is Oscar at Live With Oscar - he puts his videos up on youtube for everyone to see free of charge and so far he has been negative since October 2007 and is still negative. [UPDATE : Oscar Carboni stopped being negative a couple of months ago back in March, based on his analysis of the charts, he has now changed from 'selling the rallies' to 'buying the dips' ]

Because the stock market is a great way of losing money it is also a great way of making money, so when it does finally turn it could well be an opportunity to make some serious money. Timing is everything of course !

[UPDATE : We may now have seen the bottom at 6500 on the DOW back in March - most people are expecting a pull-back from the recent bull run to test the bottom at least, but the strange thing about the stock market is that it rarely does what most people expect - it's almost as if there is some mysterious inner circle controlling everything ! And when they decide it's time for the market to go up then it goes up.

UPDATE 2 : Well the stock markets seem determined to prove everyone wrong - according totechnical analysis 1702 was a very important level on the NASDAQ and bears were expecting a drop below 1702 and a subsequent downward movement for the markets as a whole, but they didn't get it. THe NASDAQ continued on upwards instead which is seen as a highly positive move.

UPDATE 3 : May 18 - well the NASDAQ has now fallen below 1702 and even 1699 which was also seen as an important resistance level so maybe the markets have finally run out of steam and are heading back down to re-test the lows seen in March]

UPDATE 4: June 5 - the markets bounced back again from below 1702 onthe NASDAQ and seem unable to go down at the moment ! The futures are up again today and the markets seem determined to go up - somebody's clearly making money but there are still plenty of people expecting the markets to fall back.

UPDATE 5 : Jan 31 2010 - The DOW has been up since March 2009 but January 2010 was actually a negative month and some investors are expecting drops of anything between 10% and 40% depending on who you listen to. So take care !