As investors/traders of the stock market we may believe that nobody has ever had to deal with this type of news-driven market before. A serious stock market student will know that there is nothing new on Wall Street; that the stock market is nothing more than “human nature on parade.” – William J. O’Neil How to Make Money in Stocks (HTTMS.)
What causes distortion around the end of the year? There are a handful of reasons that year-end is an especially tricky time for anyone to take new positions. Of primary influence is that many trades are made for tax considerations. It isn’t unusual to find leaders lie idle or correct while laggards suddenly seem strong. Volume dissipates through the year-end holidays as well, as fund managers take time from the markets, too. January has often been a time of general market sell-offs, which add to the difficulty for retail investors. Don’t be surprised to see one big “up” day followed by a big “down” day, only to be repeated. This type of fake-out action can cause short-term traders to chew up much capital in response.
Is the influence of “news” on the stock market new to our internet-connected world? No! A book that confirms this is How Legendary Traders Made Millions, by John Boik. Other than exposing common characteristics of legendary traders Jesse Livermore, Gerald Loeb, Barnard Baruch, and others, Mr. Boik presents the market data by decades, beginning in 1897 and ending in 2004. This easy read makes it hard to miss the world events that effected Wall Street over the past century plus.
Twenty-twelve is a big election year. What can we expect? How should we navigate in the market that will be under the spell of the media?
I am reminded of a closing quote in O’Neil’s HTTMS, copyright 1995, chapter 17:
To succeed financially as individual investors or as a nation, we need to learn to separate with better insight and perspective the relevant accurate facts from the national media’s own political agenda, personal opinions, feelings, beliefs, or desires. (emphasis his)