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Do you believe that what goes up must come down in the stock market?

by , 13 December 2013

Sir Isaac Newton said, "What goes up must come down."

And many traders believe this is true in the stock markets.

So, they try wait for the markets to fall down before they buy.

But sometimes it just never goes back to that price level.

And the problem is, they end up missing out on big and profitable moves.

The reality is…

The stock market doesn’t follow laws of gravity

Well let’s come back to earth now! I think it’s quite fascinating that these traders imagine the laws of physics apply to the stock market.

I mean let’s be honest, there’s no gravitational force pulling the stocks back to lower levels.

So many of these traders actually rely on the markets retracing believing they can simply re-enter the market at a lower price.

But very often the markets just keep climbing and this trajectory can continue for some time.

The first thing you must ask yourself is, if the share price is rising and the reports say the company has been performing well then, why should the price drop?

You should be more worried buying a share price that has dropped over 10% or so, as it shows one thing...

There’s more supply than demand which tells you there’s a lack of confidence in the share price.

But let’s be real, I’m not trying to tell you that a share price will never drop.

I mean look at some of the  small caps and even some of the big cap shares. We have seen some drop 80% or worse…
Down to zero!

But the point remains; just because a share rises it doesn’t mean it will inevitably come down. It all depends on the perception in the market of the company’s growth prospects.

Just take a look at the company SABMILLER to see what I mean!

 
Does it look like SAB Miller wants to come down?


In just under eleven years, the share price has climbed to over 978%. This is tremendous growth.

You can see how the share price rose from R47.67 in 2003 to R157.00 then in 2007 continued to R300.00 and currently in 2013 it’s sitting at R513.99.

Still it shows no sign of it coming down yet!

As an extreme example on a more global scale, you know the famous Warren Buffet’s Berkshire and Hathaway multinational conglomerate holding company? Try taking a guess at what the share price is at...

$100?
$1000?
$10,000?

No I’m afraid it’s quite a lot higher.

In fact, right now it’s sitting at $171,500!

I think the case has been rested, and so I’m quite happy to confirm that the Myth  “What goes up must come down”  is BUSTED! However with the stock exchange I’ll re-word it in a plausible way for you to live by from today...

“What goes up may come down”



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