{"id":353,"date":"2010-02-16T09:42:00","date_gmt":"2010-02-16T14:42:00","guid":{"rendered":"http:\/\/www.intuitiveinvestor.com\/web\/?p=353"},"modified":"2018-08-21T09:11:47","modified_gmt":"2018-08-21T13:11:47","slug":"the-asymmetry-of-market-rises-and-falls","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/02\/16\/the-asymmetry-of-market-rises-and-falls\/","title":{"rendered":"The asymmetry of market rises and falls"},"content":{"rendered":"

The financial markets are largely moving sideways, neither strongly up, nor strongly down.\u00a0 In my opinion this is a proper response to unexciting economic and business news.\u00a0 Firmly stated, stock markets are fairly, to slightly over-valued at this point.\u00a0 This provides a convenient backdrop for today’s post which I hope serves as a cautionary tale.<\/span><\/p>\n

In life to create something wonderful and innovative takes tremendous effort and typically many years.\u00a0 Take for example that symbol of modern fabulousity, the iPod.\u00a0 The perception is that Apple’s iPod was an overnight success.\u00a0 However, the electronics that went into it had their first germination in the 1950s.\u00a0 It took over 50 years for a hard drive to be small enough and have enough storage on it and to be cheap enough to make the iPod feasible.\u00a0 Additionally, the digital technology that lies behind music storage took nearly two decades to create, culminating with the release of Compact Disc technology in the early 1980s.\u00a0 Then it took the Internet from 1969 until the early 90s to be a viable digital network that was accessible to the public.\u00a0 Then a large majority of consumers needed to have high speed Internet connections in order to make music downloading viable.\u00a0 Then finally Apple had to establish licenses with the major music companies (which took years) in order to launch iTunes.<\/span><\/p>\n

This same sort of process, writ large, takes place across the economy and is the bedrock of what I frequently refer to as real<\/em> economic growth.\u00a0 Attaching one’s capital to this real<\/em> economic growth is the goal of every investor as it generates real<\/em> capital appreciation.\u00a0 Apple’s meteoric rise to recently much-favored Wall Street stock took almost two decades.\u00a0 Prior to the iPod Apple was seen as the also-ran in the battle for personal computer supremacy, having lost out to the combination of Intel and Microsoft.\u00a0 My point is that it takes years and years to make money as an investor, whether you are Apple investing in the iPod, or Joe Doe investing in the stock market.<\/span><\/p>\n

By stark contrast, a loss of year’s worth of value in the stock markets can take just a few trading sessions.\u00a0 Yes, there are stock market bubbles, but those typically take several years to inflate.\u00a0 But when the bubble bursts it does just that.\u00a0 As an investor it is easier to participate in the inflation of a stock market bubble than it is to avoid a precipitous stock market fall.\u00a0 This is the asymmetry of market rises and falls.<\/span><\/p>\n

So where are we now?\u00a0 The\u00a0stock markets had a dramatic lift-off last year post their March 9, 2009 lows.\u00a0 That singular, once (or twice) in a lifetime rise was to correct what was a massive overselling of equities.\u00a0 That sell-off was pricing in a Depression and not an extended, deep recession.\u00a0 But now the stock market has rise from its ashes and now manuevers sideways as valuations are full.\u00a0 A rise from here requires an unambiguous stream of positive news, yet there is no catalyst for exclusively positive news.\u00a0 In contrast, as I survey the intuitive landscape of prospective triggers for catastrophe they seem large.\u00a0 For example, a continued problem with unemployment (which is likely) will stall consumer spending and will lead to a stall in the\u00a0economic recovery, if not a fall back into recession.\u00a0 A Middle Eastern conflagration (e.g. in Iran)\u00a0would cause a massive sell off in equities and send commodities prices dramatically higher.\u00a0 A lack of new capital flows to business (read: consumer spending) will lead to a lack of innovation in U.S. businesses, leading to lower profits, leading to poor earnings results, leading to a stock market sell-off.\u00a0 And on and on.<\/span><\/p>\n

My singular point of this post is to highlight that we are much closer to a rapid sell-off in the stock markets than we are to a rocket-style liftoff.\u00a0 I am quite comfortable in cash or low-investment quality bonds right here.<\/strong><\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

The financial markets are largely moving sideways, neither strongly up, nor strongly down.\u00a0 In my opinion this is a proper response to unexciting economic and business news.\u00a0 Firmly stated, stock markets are fairly, to slightly over-valued at this point.\u00a0 This provides a convenient backdrop for today’s post which I hope serves as a cautionary tale. […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[12,3],"tags":[],"class_list":["post-353","post","type-post","status-publish","format-standard","hentry","category-best-of-the-blog","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/353","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=353"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/353\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=353"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=353"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=353"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}