The S&P 500, the NASDAQ and especially the Dow are garnering a lot more attention from the general public during this extended bull market.
What was once almost exclusively a subject for brokers and bankers, the stock market is becoming part of everyday conversation for our co-workers, our neighbors and even our pizza delivery guy.
As all three major market indices continue to rise to new highs, this is probably a good time to take a look at a couple of odd investing topics that only come up during times like these.
> The first topic is "Big Round Numbers" Big round numbers in the stock market catch everyone's eye.
Whether it's a single stock (like Apple reaching $100 a share) or an index (the Dow reaching 17,000), something about those big round numbers gets our attention.
This phenomenon is not just related to the stock market: "200 Days Without a Workplace Accident" "1,000,000 Burgers Sold" "Our 30th Wedding Anniversary" We see numbers like these in our everyday lives that stand out to us for some reason.
Is it because they are easy to understand? Is it a cognitive recognition thing? Are our brains wired to place some kind of significance on big numbers? It is a strange thing when you think about it.
Are big round numbers important? In the case of that 30th anniversary, the answer is yes...
if the husband knows what's good for him, that is.
He may have forgotten 28 and 29, but he better not forget 30! That number should have his attention.
Are big round numbers in the stock market important? Apparently they are only important to casual observers.
When the S&P 500 hit 2000 for the first time on August 25, 2014, the number was all over the news.
But in and of itself, the number meant little.
Stock valuations did not jump.
Volume did not explode.
The VIX (the "fear index") barely moved.
August 25 was actually a quiet day for the market overall.
For some investors however, big round numbers are important, but only because they are lazy.
Instead of doing some chart research to locate areas of price support and resistance, they will use big round numbers as their buy or sell signals.
They will say something like, "Well, when the NASDAQ reaches 4,000, I'm getting out of the market.
" Maybe you have heard this one, "If my XYZ stock ever hits $100 a share, I'm selling it all!" There is no logic displayed at all, they just choose a target with a big round number.
Trend following is an investment method that does not place any importance on big round numbers.
What these types of investors do place importance on is how the market reacts when those big round numbers are reached.
Is there enough selling to put a damper on the up trend at that level? Is there enough buying to push the trend on up through that level? Like all other market "events," trend followers pay more attention to the market's reaction to reaching that big round number than the big round number itself.
That reaction helps them gauge the strength or weakness of the current trend.
> That brings up our second odd investing topic: "Fear of Market Highs" All-time highs in a stock, a mutual fund or a market index scare many investors.
Perhaps you have heard this comment, "We're in a market bubble.
There is no way stocks can go higher.
" Your neighbor may have said, "My ABC stock just hit an all-time high.
I have got to get out!" Here is one of our favorite comments, "This ETF just hit an all-time high.
I'm scared to buy it now.
" While it pays to be smart when investing in or holding on to stocks during extended bull runs, all-time highs are only all-time highs until prices move higher.
That obviously sounds simplistic, but if no one ever bought highs, the S&P would still be at its 2009 low of 666.
Apple would still be a $22 stock.
We would not need our 401(k)s; we would just stuff money in a mattress.
As with big round numbers, the only thing trend followers watch when it comes to all-time highs is the market's reaction to them.
Using price charts, they can easily see if those highs mark the end of a trend or just another high, then make portfolio adjustments if necessary.
The all-time high itself does not cause them to panic.
Big round numbers and all-time highs are often hot topics for casual investors.
They should not be.
Trend following and price charts should be the subjects of conversation.
Those are the topics that can turn casual investors into smart investors.
What was once almost exclusively a subject for brokers and bankers, the stock market is becoming part of everyday conversation for our co-workers, our neighbors and even our pizza delivery guy.
As all three major market indices continue to rise to new highs, this is probably a good time to take a look at a couple of odd investing topics that only come up during times like these.
> The first topic is "Big Round Numbers" Big round numbers in the stock market catch everyone's eye.
Whether it's a single stock (like Apple reaching $100 a share) or an index (the Dow reaching 17,000), something about those big round numbers gets our attention.
This phenomenon is not just related to the stock market: "200 Days Without a Workplace Accident" "1,000,000 Burgers Sold" "Our 30th Wedding Anniversary" We see numbers like these in our everyday lives that stand out to us for some reason.
Is it because they are easy to understand? Is it a cognitive recognition thing? Are our brains wired to place some kind of significance on big numbers? It is a strange thing when you think about it.
Are big round numbers important? In the case of that 30th anniversary, the answer is yes...
if the husband knows what's good for him, that is.
He may have forgotten 28 and 29, but he better not forget 30! That number should have his attention.
Are big round numbers in the stock market important? Apparently they are only important to casual observers.
When the S&P 500 hit 2000 for the first time on August 25, 2014, the number was all over the news.
But in and of itself, the number meant little.
Stock valuations did not jump.
Volume did not explode.
The VIX (the "fear index") barely moved.
August 25 was actually a quiet day for the market overall.
For some investors however, big round numbers are important, but only because they are lazy.
Instead of doing some chart research to locate areas of price support and resistance, they will use big round numbers as their buy or sell signals.
They will say something like, "Well, when the NASDAQ reaches 4,000, I'm getting out of the market.
" Maybe you have heard this one, "If my XYZ stock ever hits $100 a share, I'm selling it all!" There is no logic displayed at all, they just choose a target with a big round number.
Trend following is an investment method that does not place any importance on big round numbers.
What these types of investors do place importance on is how the market reacts when those big round numbers are reached.
Is there enough selling to put a damper on the up trend at that level? Is there enough buying to push the trend on up through that level? Like all other market "events," trend followers pay more attention to the market's reaction to reaching that big round number than the big round number itself.
That reaction helps them gauge the strength or weakness of the current trend.
> That brings up our second odd investing topic: "Fear of Market Highs" All-time highs in a stock, a mutual fund or a market index scare many investors.
Perhaps you have heard this comment, "We're in a market bubble.
There is no way stocks can go higher.
" Your neighbor may have said, "My ABC stock just hit an all-time high.
I have got to get out!" Here is one of our favorite comments, "This ETF just hit an all-time high.
I'm scared to buy it now.
" While it pays to be smart when investing in or holding on to stocks during extended bull runs, all-time highs are only all-time highs until prices move higher.
That obviously sounds simplistic, but if no one ever bought highs, the S&P would still be at its 2009 low of 666.
Apple would still be a $22 stock.
We would not need our 401(k)s; we would just stuff money in a mattress.
As with big round numbers, the only thing trend followers watch when it comes to all-time highs is the market's reaction to them.
Using price charts, they can easily see if those highs mark the end of a trend or just another high, then make portfolio adjustments if necessary.
The all-time high itself does not cause them to panic.
Big round numbers and all-time highs are often hot topics for casual investors.
They should not be.
Trend following and price charts should be the subjects of conversation.
Those are the topics that can turn casual investors into smart investors.
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