Do headlines of stock market advances tempt one to buy? After all, if the market is going up, then more people are buying than selling, which means opportunity, right?
Conclusion Jumping
Logic is not the problem. It is assumptions about what is happening, and one’s attachment to perceived meaning. Namely, seeing what is happening and then assuming it meets one’s ideas.
Yes, the market goes up, and it also goes down. But that is all, The market’s daily movements have no meaning. They just are.
To ascribe meaning to stock market’s movements is akin to seeking animal images in the shapes of clouds.
How To Assess
So the question comes down to how to determine when to buy. This is a personal decision, but for me, basing my actions on the consensus of the crowd is not my way.
I tend to do some research first. I look at the numerous statistics and measures of the company and its stock. I determine what the price I am willing to pay. Then I wait. Most of the times the stock is higher than I would like to pay. Because I like to buy on a discount.
When a stock dips down to where I am interested in buying, I watch and pounce when I am ready. Certainly I will admit that this approach is strictly personal and prone to my perspective on the economy in general, on the markets in general, and on the stock specifically.
Since I am a dividend investor, the data about the dividend is of high importance to me. What is the yield? What is the history of dividend growth? Does the dividend seem to be sustainable? And so on.
Why
So it all may come down to why one is buying stock. If the goal is to buy because one hopes the price will go up, and later sell for a profit… then yes, the movement of the crowd can be considered important. An out of favor stock could mean people have soured on it usually means less positive price action.
The Alternative
When I buy stock, I buy for income. Income is my goal. As a result, I do not worry about selling. Assuming the company does well, dividends will continue and even grow. And as a result, my income will grow.
Reality
So No, I am not tempted to buy just because others are bidding prices up. In fact the bidding up of prices that occurs on bullish days is a warning to me to be cautious. “If it sounds too good to be true, it probably is.”
Whenever I feel I might get tempted, I remember about Yale economist Irving Fisher’s October 16, 1929 comment in the New York Times: “Stock prices have reached what looks like a permanently high plateau.” Eight days later, the crash started.
Tempted? Let me know here.
The illustration of a landscape is from Maria Catharina Prestel’s Printed Cabinet of Drawings (ca. 1780s). Courtesy Rijksmuseum, Amsterdam, Holland.
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