Tune in to any finance program on TV and you will hear a talking head explaining why a particular stock or the overall market moved the way it did. These crack me up. Occasionally they are clearly right, like when the market tanked on 9/11. But most of the time they are just guessing and trying to impress clients. There are thousands of interrelated things going on every day, and some guy knows which one was responsible for a 1% move in XYZ? I don’t think so.
The only thing that moves the price of a stock or the market at large is what you learned during the first week of ECON101: supply and demand. When more people want to buy than sell, prices go up, and vice versa. And the big players like VanRockStreet buy and sell tons of stuff every day, regardless of price movements. They add some here, trim some there, rebalance–they have to look busy to justify their paychecks (and massive bonuses). Warren Buffett (or Todd and Ted) doesn’t trade much because he doesn’t have people looking over his shoulder and judging him.
There’s an oft-repeated anecdote about JP Morgan being asked what the market will do. He replied, “It will fluctuate.” I love his refreshing honesty. Let me be more daring and put myself on the line: In the long term, it will go up. That’s all most investors need to know. – DG