It's Global - this bumpy ride

Yesterday the New Zealand sharemarket staged another decent rally and closed more than 1% higher as investors returned to hunt out bargains. Remember, buy when the market is down :)

Asia took a hammering last week but Japanese stocks continued to recover on Tuesday.

The Australian stock market finished higher yesterday with signs that some stability might be returning after the market was rocked by concerns over US sub-prime mortgages.

See my post dated 16 August for the sorts of reasons that this happens.

Market rollercoatser

Volatility in the markets remained high last week. It is becoming extremely difficult to escape the news about the deteriorating environment of mortgage and corporate lending sectors in America.

Here in New Zealand yet another Finance company collapses as we awoke to the news of Nathan Finance this morning.

Equities confidence has also been rattled by the dive of the New Zealand dollar, which has lost 15 US cents in three weeks and continued trading wide daily ranges.

Stock market go up and down

We all know that stock markets are constantly moving up and down. Over many years history has shown that markets go through cycles and the current volatility is a normal part of the investment cycle. This means that markets sometimes move down as well as going up.

Panic selling and buying in volatile times has been shown to be one of the worst strategies a person can use.

As we know, what happens in one market influences another, hence the term “when America sneezes the world catches a cold”. The problem is that human emotions can all too easily magnify the effect. Sentimental opinion is based on what people think will happen, as opposed to what really might be. Bad news in one part of the global market leads people to expect similar bad news in their own local market. This then causes them to start selling stocks irrespective of whether the problem is relevant to their market and so it goes on.

Remember why you invested in the first place. If the investment looked good then has anything really changed? Has your time horizon for the investment changed? Don’t let it be fear that makes you sell.