Monday, February 20, 2012

Investing: What Goes Up Must Go Down? Really?

While surfing the world wide web you can find a lot of nonsense. For instance this claim: "What goes up must go down", followed by the sentence "Nothing stays up forever", both related to the stock market ( Many people seem to believe this humbug, at least I read it very often.

Holy cow! Did these people ever happen to watch movies like "Star Wars" or "2001: A Space Odyssey"? When you throw a ball in outer space then it could travel a very long time, maybe to infinity. There is not much gravity and an "up" and "down" in the Universe, except close to celestial objects (wikipedia). An apple falls from a tree because it´s attracted to the earth. If you are departing from our planet this attraction will shrink rapidly.

This also is true for the economy and stock market. There is no rule that something must go "down". For instance the Dow Jones Industrial Average, known as the "Dow Jones"  was first published in the late 1890s at a level of 40.94 points (wikipedia). Since then the stock market barometer climbed to 12.949 points, more than 300 times. Most of the many temporary pull backs were wiped out over time.

In the long run stocks are rising because the economy is expanding, at least as a long term trend.  The rise of the western world started around the 14th century, during the Renaissance. Today we are much  wealthier than people in 15th century, the 19th century or even the 60s of the last century.

I reckon that global wealth & stock markets will continue the climbing trend because of  rising global population,  accelerating technical progress, the catching-up process in Emerging Markets and rising money supplies.

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