Knowing how to invest well in different market situations, during ups and downs, bearish or bullish, is essential.
The stock market has generated significant wealth over time. On average, the S&P 500 index, comprising the 500 largest publicly traded companies in the U.S., has yielded annual returns ranging from 8% to 12%.
An initial investment of just $10,000 in the stock market half a century ago would now be worth over $380,000.
However, it's important to note that the stock market doesn't experience growth every year. The S&P 500 declines around three out of every ten years. Some of these declines can be severe, and the market's volatility might not suit everyone's risk tolerance.
At Buffett Online School, we also believe in investing in great companies you understand, and utilizing Free Investing Resources to help you start your financial freedom and investment journey is one of the best ways to learn.
We recently had an interview with Borwen, who already has an extensive investing background, having begun investing at 21 and accumulated over 10 years of experience.
Borwen has navigated various market cycles, enabling him to make well-informed investment decisions.
Borwen delved into several factors affecting the market, beginning with notable news articles that had caught attention recently.
He discussed how the sentiment of famous investors like Michael Burry, who had bet against the market with a significant amount of money, and insights from a seasoned Goldman Sachs veteran had impacted market sentiment.
Borwen emphasized the need to consider these reports cautiously and not jump to conclusions solely based on such news.
He introduced the Fear and Greed Index to gauge market sentiment, where higher values indicated greed and lower values signaled fear.
Borwen explained how he interpreted the index and suggested that being cautious when others are greedy and taking opportunities when others are fearful aligns with Warren Buffett's well-known investing philosophy.
Inflation and Its Influence on The Market
Bowen explained that inflation data had shown fluctuations, and he highlighted the importance of the Federal Reserve's stance on interest rates.
He clarified how inflation and interest rates were interrelated and how the Fed's decisions on interest rates could impact market dynamics. Borwen presented data on shelter inflation and how it could affect the overall inflation rate.
Implications of Interest Rate Changed
He introduced the concept of being "hawkish" or "dovish," terms often used by the Federal Reserve to express their stance on the economy.
Borwen explained that hawkishness suggested a potential increase in interest rates due to concerns about the economy. At the same time, dovishness implied a more positive economic outlook, which could lead to a reduction in interest rates.
The Federal Reserve's stance on interest rates is currently under discussion, with questions about whether they lean more dovish or hawkish. The prevailing sentiment is that most Fed officers remain relatively hawkish, suggesting a likelihood of further rate hikes.
This could pressure the economy, affecting those with loans, particularly mortgages. Borwen emphasizes that while fixed deposit returns might benefit savers in the short term due to higher interest rates, this strategy might not align with the government's intention of encouraging spending and borrowing.
The FOMC's announcement on the upcoming rate hike, scheduled for September 19 and 20, will be a significant event to monitor for its impact on the market.
Borwen suggests avoiding major decisions during such announcements is advisable for most investors due to the anticipated volatility. However, those experienced in options trading might find opportunities to benefit from increased volatility.
The current economic phase could be situated between optimism and belief. While the market has experienced upward momentum over the past year, it's acknowledged that entering the market requires careful consideration and a focus on the long term.
Technical Analysis as a Tool for Market Patterns
Borwen also introduces technical analysis as a valuable tool for understanding market patterns. The recent market correction is healthy, and Borwen is willing to accumulate shares during this phase.
As a bonus, Borwen also discusses Apple as a company of interest. The technical analysis suggests that the current price level could be a favorable entry point for potential investors.
However, Borwen highlights the importance of not solely relying on technical analysis and considers fundamental analysis, such as price-to-earnings and price-to-book ratios, to assess a company's valuation.
While Apple is a strong company, other opportunities might offer better potential returns.
Borwen's ideas about how markets work and understanding their patterns can significantly help investors. It's a good idea to see when prices in the market go down as a regular occurrence and a chance to buy, and it's essential to think about how a company is worth before investing. Always do your due diligence!
Right now, the economy is between feeling positive and being careful. So, the main advice is to think about the long-term when dealing with the market and be smart about taking risks and getting rewards.
Watch the entire session on Chloe Lin - Arigato Investor’s YouTube channel.
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