If you were to think about investing in the stock market, most investors were buy and hold investors. There were reasons for that, commissions were expensive, to open a trading account you needed thousands of dollars, the brokerage industry was not really interested in small accounts because they did not generate fees or commissions because by definition they are small accounts. It was hard to open an account for you would have been told you can buy a mutual fund account or a bank product. For a number of reasons many small investors did not trade on the stock exchange.
In the the last few years, that has changed and there are multiple firms where small investors can open accounts and begin trading at no commission. The process is the democratization of Wall Street. With all changes there are some good and not so good things about it. For the moment, the new entrants have been rising the wave of increases in Wall Street, but the rule of Wall Street is stocks go up and they go down.
In January the rise of meme stocks and Wall Street Bets on Reddit form. If you never been there, you should look at it. The meme stocks are considered GameStop, AMC, Blackberry and a few others. From a fundamental analysis the stocks trade at higher multiples than they should, however the price rose and the meme stock traders occasionally push up prices. This increases volatiltiy.
In an article by Erin Griffith of the New York Times News Service, Gavin Baker an investor at Atreides Management noted volatility is moving from market to market and I am treating it as the new normal.
In general, governments have tried to ensure people have money to spend during the shutdowns of the pandemic and bank deposits grew to $18.5 trillion in the first three months of the year compared to $15.8 trillion in the same period of 2020. During the shutdown, people could not spend money on leisure and entertainment and some bought stocks. When they can spend on leisure and entertainment will they buy stocks?
There are some who are suggesting the markets will fall such as Michael Bury and it could.
Linking to dividend paying stocks, when you buy a dividend paying stock the company is making a profit and paying you a dividend. The market will value the profit making and raise and lower the price of the stock, the dividend can still flow when the price of the stock goes up and down. In the long run, owning profitable stocks is good and when they pay a dividend they provide insurance of what the market does.
There are more questions than answers, till the next time – to raising questions.