Editor’s note: This article was first published in May 2011. Its market commentary reflects the risks of that moment: the US deficit, the restructuring of Greek debt with talk of Greece leaving the euro, and the restructuring of Spain’s financial system.
In my opinion, the stock market is the most profitable investment, and I’ve already explained why in this article: Why investing in the stock market is the most profitable investment. It has its advantages and, obviously, its drawbacks. Analysts and economists agree on one thing: the stock market is weathering the crisis very well, posting striking returns.
This weekend at Bolsalia (an investors’ fair), the message was very clear: “It’s time for stocks,” said one of the best-known analysts. There is optimism that the IBEX (Spain’s benchmark index) will keep climbing, all because the market has so far held up very well despite the storm that has hit and is still hitting.
Well, I wouldn’t be so optimistic about the current state of the market, because right now there are several very dangerous “bombs” for the markets.
On the one hand, there’s the US deficit, and on the other, the restructuring of Greek debt, with warnings that Greece could leave the eurozone. Both factors could put European stock markets, and probably those around the world, at risk.
On top of that, Spain’s financial system is in the middle of a restructuring, and our energy companies compete directly with renewable energy companies, with no way of knowing which will end up appealing to investors over the next four years. There is no clear energy policy.
Because of these factors, we can say that the stock market has performed well so far in the face of the crisis, but that is past performance, which doesn’t predict the future. Right now we are facing a market where nobody can predict which way it will go. Logic says the market should fall, although, as we’ve discussed before, the stock market hasn’t been following any logic lately.
That said, this could be a good opportunity to take a good position (if a fall does happen). If the indicators turn red, it will be bad news for some (those holding shares) and a good buying opportunity for others (those on the sidelines).
Today I wouldn’t take any position in the stock market; I would simply wait and see how the market develops. In fact, I don’t currently hold any shares in my portfolio, because I’m counting on a possible drop. I may be wrong, but it’s better to be wrong and not make money than to make a mistake that loses me money.
Further reading
- Why do individual investors get better results than financial advisers?
- The dangers of investing through third parties
Featured image: Ank Kumar, CC BY-SA 4.0, via Wikimedia Commons.
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