Tuesday, October 14, 2008

The stock market is bouncing back.

The point is that people are selling off stocks. I’ll say that again people are selling off stocks ----- that means that someone is buying.

Why did you pay $25 for your shirt? Because you think its a good price for the utility of the shirt. Why is someone buying the stocks that are being sold? Because they think that the stock is a good value at the offered price.

People are panicking and selling for what ever they can get. Someone else is looking at that price and saying “If I buy it now at that price, it will be worth a lot more later”. It’s like your house, before the bubble burst it was worth three hundred thousand dollars after the bubble it’s worth only $200,000. The only reason it matters is if your going to sell.

It’s value as a living machine is still the same, the same three bedrooms, two baths, same back yard. If your plan is to live in it, do you really care how much the house would theoretically sell for?

The same is true for your stock portfolio. The selling price only matters when you sell. If you’re not retiring this month, why sell your IRA? If your retiring this month, it’s too late to make any big changes.

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