There are new investors coming into the stock market all the time and most seem to be unaware of how it actually works and this causes them to panic and become greedy. Here is some stock market for beginners information which can help you keep your calm and help you see the bigger picture.
Ever since there has been a stock market there has been a consistent and ongoing pattern that has been forming. No matter what anyone says it is likely that it will continue to happen in the future. And this pattern is not limited to the stock market, it happens in every market where there is legitimate long term demand.
So, what is this pattern? Well I like to call it the bull/bear market cycle.
It all begins when prices are low compared to the companies that they are actually backing. Investors who see legitimate long term value in it jump into the market and start buying stocks. This buying pressure pushes stocks upward and other people start buying stocks to get into it.
As more and more people start buying stocks and the prices start heading higher even more people want to get involved in this gold rush so they jump in and start buying stocks.
It is at this time that people seem to think that the market cannot go down. In fact in the late 1990s people though bear markets were a thing of the past because of the internet.
However in the end the market cannot sustain unrealistic prices forever. If the stock is trading for 2 or 3 times its real value it is going to have to pull back eventually. In fact one of the major causes of the great depression was the roaring 20s and how high the prices got to.
Eventually smart investors come to the conclusion that holding securities that are trading for more then what they are worth really isn’t a good idea. So, they sell their stocks and that pushes the market down. This leads to panic as people see stocks go down for the first time and the public begins to sell their shares bringing the economy crashing.
Eventually the “gurus” stop trying to call the bottom of the stock market and everyone thinks that the world is ending. One of the free stock tips that people tend to give is to start investing your money during this time because it is usually when the bottom hits and we start going up again.
While stocks are still pretty cheap compared to what they are really worth new investors start to jump into the market and buy as much as they possibly can. This leads to another bull market which leads to people jumping on board the gold rush. This cycle repeats over and over again.
For more information on the stock market visit Shaun’s site on the stock market basics