Why do we cheer Rising Prices? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 18 May 2013
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Why do we cheer Rising Prices? A  A  A


- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Due to the recent market rally, the Nifty index is nearing its all time highs. In fact, many stock markets around the world are in the same spot - near their all time highs. Naturally, we have a very positive reaction to such a development. The financial press likes the fact that stock prices are going up, and as investors so do we.

But is it the case that stock market rising is always a good thing? Why do we always cheer rising prices, and panic when markets start to fall? Imagine it is the case that stock markets are going up, but it is not fundamentally justified. Then rising prices is a bad thing, because it means they will have a greater fall in the future.

Let's take a step back and think about what exactly occurs when market prices move. When markets go up, the price of buying shares in companies goes up. That is all. It is simply the prices of companies changing. Who benefits the most when share prices go up?

Rising prices are beneficial for those who already own shares, but it hurts investors who don't own shares. If you don't already own shares, then you suffer because it now costs you more to buy. Imagine you were buying an airline ticket or any other good. You would be upset if prices go up, but would be happy when prices go down.

The fact is that when market prices move, some people benefit and some people do not. And which category you fall into depends on your current investment portfolio. If you are someone who is looking to make investments, then you are better off when markets fall. In fact, during market crashes is often the best time to buy stocks because they are so cheap.

The next time the markets move, try and view it simply as prices going up or down, rather than good news or bad news. Just like for other products, when prices change, you would simply think about how that affects your own situation (i.e. whether you are a buyer or seller of that product).

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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4 Responses to "Why do we cheer Rising Prices?"

Commodore S Bhandoola, VSM, Indian Navy (R)

May 21, 2013

It is certainly not enough to look at just the price and to buy just because the price is down.There are numerous other parameters which are very well known to u, which must be studied and analysed before taking the decision to buy. If we do not do this we could land up with the shares of a company whose price is cheap and would keep dropping because the company is intrinsicly a bad company.

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kganguly

May 19, 2013

Isn't rising prices a sign of optimism in the economy? It probably is a good sign for short term investors unless the rise is a result of speculation only.

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D.B.PATIL

May 19, 2013

Not very happy with Market having gone up at present level as small caps & mid cap stocks are lingering behind , causing a lot of drain on my overall portfolio holding, how I wish that nonperforming stocks should have been got rid off in the past.Further wish that I should have invested those funds in some stocks an year back which are now almost at all time high, thus gaining handsomely.I confess that I am not A " Warren Buffet" type of investor.

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D.B.PATIL

May 19, 2013

Yeas , I fully support calling bull market as when stock prices go up,not happy as my folio does not consist of all the stocks that has gone up, as over the years I have accumulated stocks like Sulzer India or few real estate stocks like HDIL, Orbit Corporation , or some infra structure stocks like GVK or GMR infra which I am stuck with. Neither unable to swallow or throw out.

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