The title of this blog could certainly be the catchphrase of this year 2020. For certain, there has been an awful lot of uncertainty. I’m guilty of using this phrase and as a CFP® I also know that it can’t be true.
First off, if there was absolute certainty in the stock market, who would ever be on the other side of my trades? If I owned IBM and it was priced at $150 a share and there was absolute certainty in the market that IBM wouldn’t go any higher, who would buy my IBM shares if I wanted to sell them? And if it was absolutely certain that IBM wasn’t going any higher, I would want to sell them.
The financial markets operate on probability of events based on all the information that is available. When making a decision on whether to buy or sell a stock, I look at the companies financial information, sales trends, management team, economic trends, interest rates and a myriad of other things and then with that information I determine the probability of whether or not this investment will work to my advantage.
Let’s look at this year as another example. I ask the question, that if it is true that the market hates uncertainty, then why has it bounced back from its lows in March? It’s still uncertain that we have a handle on COVID-19. It’s uncertain whether or not we will have another spike in cases. It’s uncertain that a vaccine will be developed. It’s uncertain that people will take it if it is. It’s uncertain what political party will control The House, The Senate, and the White House next year. Uncertainty aside, investors are looking at economic data, corporate earnings, interest rates and are seeing the probability of a quicker economic recovery as being high. Therefore they are buying stocks of good companies and moving the market in what many would see as the opposite direction they would expect with all this uncertainty.
Back in 1999, it was certain that stocks wouldn’t stop going up; in March of 2009, there was the same certainty that stocks would never stop going down. Both certainties were wrong.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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