| Actually, the complete reverse happens. Investors are more likely to buy when shares are rising and sell as prices fall.
But why?
Stock prices fluctuate, sometimes for a good reason, and sometimes for no reason at all. If everyone is buying, it must be good…and if everyone is selling then….well you get the point.
Let’s look at some of the biggest stock names. At yesterday's prices, you could have bought Apple at $131.88, 27.54% less than its price of $182.01 on Jan. 1. By the way, yesterday’s price is still considerably higher than Apple’s price on Jan. 1, 2020, which was $74.36. Additionally, Apple’s price-to-earnings ratio is now 21.41, which sounds more reasonable than a P/E of 35.62 at the end of 2020.
What about bitcoin? The coin ended yesterday at $22,075, down over 50% from the start of the year. But at the beginning of 2020, bitcoin was trading around $7,000.
Obviously, it can be quite scary to invest as stocks are plummeting. It is important to note that stock markets go through cycles, with highs and lows. But outside the brief Covid crash (2/20-3/20)—the S&P 500 has not been in a bear market since the Great Financial Crisis, when markets dropped 51.93% between 2007-2008, recovered, and then dropped again another 27.62% between Jan. 2009 - March 2009. Many of today’s investors have not invested through any downturn (besides the Covid crash).
What goes down typically goes up again... Market cycles are naturally occurring patterns. I found this chart on the Bocconi Student Investment Club which does a rather nice job of identifying the various phases of a market cycle. Right now, I’d say we’re between panic and capitulation, but after tomorrow’s FOMC meeting, we might be further down the curve. | 