Anyone involved in stock investing must understand the biggest cycle in the stock market. And for the stock market beginner, it seems to be a big secret because the experienced investors don't talk about it. They don't have to - they understand it. Fortunately, it's easy to learn. And once you understand it, you can use it to turn a profit on your investments.
How the Cycle Works:Basically, the cycle works like this:
- Prices rise and the market moves in a mostly upward slope.
- After awhile, investors get the jitters - they get nervous.
- An event occurs that triggers a sell-off and the market plunges.
- The market begins going back up again.
The Rise of the MarketThe stock investing crowd is a hardy bunch, that's for sure. They're pretty tough, but even they can get a little weak in the knees now and then. And riding a roller coaster stock market can give anyone a sick stomach. But the market's natural historical tendency is to rise. Now there will be little drops along the way, and not all stocks will go up, but the market will rise. A point in time will come when the market just goes up and up and up.
Nerves Get FrayedInvestors know that the market can't go up forever, even if the current trend looks that way. So, people get nervous. They know that, sooner or later, a "correction" will occur. What's a correction? That's when the market changes direction. But investors don't know when this correction will occur - it could be days or months away - and that makes them even more nervous. They want to sell, but they don't know when.
The TriggerFinally, some event occurs that serves as the trigger for the correction. It could be war, a tremendous natural disaster, shocking economic news, etc. Regardless, it causes investors to sell...and sell. A sell-off happens and the market plunges.
Whatever Goes Down, Will Come UpSooner or later, the market begins to rise again. Some may doubt this, but it always happens. On October 19, 1987 the Dow plunged a whopping 22.6%, one of the biggest drops in history. Yet, 16 months later the loss was eradicated. The market went back up.
However, experienced investors don't fear the Big Sell Off. They know this cycle is a natural part of the market. They know the secret of the cycle for stock investing.
Learn to Profit from the CycleThe lesson to be learned here is that stocks held in the long term consistently produce a solid return. If you have a good stock portfolio and hold onto it, you'll turn a profit. Of course, some of your stocks will be losers, that's unavoidable. And it is possible to produce excellent profits in the short term, but above average stock-picking skills are required. They key to success with do-it-yourself-investing is to acquire a wisely-chosen stock portfolio and keep it. You'll be glad you did when you see the money it brings you.
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Will Sharp is a free lance writer and a full time researcher.
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