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Turbulence
and the Stock Market By Jeffrey E.
Auerbach, Ph.D. The psychology
of this market is amazing, according to certified financial planner, Stephen
Wagner, “we had the best single week since 1982, and then it was suddenly down
when people realized the war wasn’t going to be quick.”
In some weeks the Dow Jones industrial average has been up
662 point in a week, and then down 307 in just one day.
Turbulence, such as war, and terrorism, typically affects our confidence
-- which pushes the market around. Market
experts say that recent point swings are especially huge. Volatile
Thinking Investors are responding to day-to-day events surrounding the war, which leads to wild swings in the market. This immediate response in investment activity is adding to market volatility and doesn’t represent a rational long-range investment plan. Optimism tends
to fuel investment in stocks, so disturbing news from the war front depresses
the stock market”, says Dr. Subrahmanyam, professor of behavioral finance at
the University of California, Los Angeles. “A lot of the
volatility on the market right now is emotional mood,” Subrahmanyam said.
“If the war settles into a routine, then the market will settle
down.” Doug Steigerwald,
economics professor at the University of California, Santa Barbara, expresses a
slightly different opinion. Uncertainty
about the future tends to move the market.
The actual start of the war gave us an idea of when the war will end.
Now that the war has started and now that President Bush has given some
idea of what it might cost, people have some information that they can use to
make decisions,” Steigerwald said. Technology
certainly contributes to market volatility and to executive decision-making.
Unprecedented access to live war coverage on television and on the internet
affects the mood of individual investors – just as it does executives trying
to make wise decisions. Individual
investors are left wondering “what should I do?” Here are the
choices many investors are contemplating: A) Should I cut my losses or take some small profits, but just get out of the market? B) Should I get a low interest home-equity loan and purchase some bargain stocks? C)
Should I sit tight and stick to a long-term investment plan? Most financial
experts are advising to remain focused on long-term goals.
Kevin Bernzott, CEO of Bernzott Capital Advisors, says, “If you’re
saving for retirement that is 15 to 20 years away, all this stuff happening in
the market now is irrelevant. If
your time line is less than five years from now you shouldn’t be in the market
anyway. Atticus Lowe, an
analyst with West Coast Asset Management, adds that it is a mistake to make
decisions from moment to moment. According
to Lowe, “the best idea is to invest in great companies and keep the long-term
focus.” for the Peak Performance Leadership Workshop with Optional Coaching. College of Executive Coaching The Leader in Emotional Intelligence-Based, Peak Performance Leadership Training and Coaching
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