In the midst of U.S. recession fears, which has brought many a pessimist crawling out of the woodwork to set themselves up as experts on gloom and doom (experts with their hats turned up on the sidewalk), the Dow Jones Industrial Average rocked and rolled upward on Friday, April 18th, as earnings reports from the likes of Citigroup, Inc. and Google reminded investors of all the wealth being generated by so many companies.
According to financial analysts at Action Economics, "U.S. equities burst to the upside…as earnings in the financial and tech sectors broke through the gloom."
"The panic is overdone, and before you know it things are going to be just fine. The world’s ticking along just fine," adds Michael Williams, a managing director who helps to oversee approximately $2.8 billion in client assets with Genesis Asset Management in New York.
One of the great secrets that successful investors will especially be exploiting during these times of fear and trembling and the roars of bears is that during bearish times rational, contrarian investors have their stock portfolios rise by an average of 21% per year.
As corporate earnings on average are on the rise, profits from investing in them wane. But as their reported earnings take beatings, the rewards for holding shares in them dramatically rise. The numbers prove this to be true.
Why is that?
There’s an old, old proverb in the world of investing: buy low and sell high. In bearish times, in times when people are afraid that the sky is falling down on their heads and the demon Recession is at their door, companies tend to have their stock prices lose value. What this means for the shrewd investor is that stocks are on sale. It means that these companies’ expectations-bars have been lowered. It means that companies can leverage more of decent news and don’t need as much extraordinary performance to have their stock prices bid up by the market makers on the floors of the stock exchanges.
It is always amazing to see people flock to retail stores or supermarkets to buy goods that are on sale—that is, have had their prices lowered—while so many of those very same people refuse to apply the same principle of buying something on sale in the stock market.
If one’s local supermarket puts Coca Cola on sale, does that indicate that Coca Cola is doing poorly? No. It means that due to certain temporary circumstances, someone who drinks Coke can have themselves a good time.
The very same principle holds true on Wall Street.
The panic is overdone, indeed.
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