Obviously if it keeps going down, that’s bad. But it looks like it’s at a support level and still much, much higher than it was 5 years ago. (Using SP500 as a proxy for the market at large)
In: Economics
While the price is the same as months ago, the price that investments were made at is not.
Lets say I buy Pear Company stock for $10. In 20 years it goes up by 600% to 60. One year later it drops 50% to 30.
Okay I make $20. If I sold a year ago I’d have made $50 though.
Now let’s imagine you bought Pear Company for $60
If you waited a year youd have lost %50 of your money!!! How long would you have to wait for it to go back up just to break even?
That’s why it’s bad. Everyone that bought stocks in the last few months is losing money.
Now in our example you could have mitigated how much you lost. Instead of 30, you could have sold as soon as the stock dropped to 50. You’d have lost 10 instead.
But selling makes the price go down because you get more sellers than buyers so you have to lower the price more to sell.
**This is the threat with the stock market. Billions of dollars are invested and if the stock market drops they need to sell to avoid losing too much money. But everyone doing this all at once will make all the stocks drop more.**
Yes the stock market is purely psychological. And we know how people will react, so we are worried about that.
Latest Answers