subject: The Repetitive Stock Market Cycle [print this page] There are new investors coming into the stock market all the time and most seem to be unaware of how it actually works and this causes them to panic and become greedy. Here is some stock market for beginners information which can help you keep your calm and help you see the bigger picture.
Ever since there has been a stock market there has been a consistent and ongoing pattern that has been forming. No matter what anyone says it is likely that it will continue to happen in the future. And this pattern is not limited to the stock market, it happens in every market where there is legitimate long term demand.
So, what exactly is this pattern? Well it is the bull market and bear market cycle.
It all begins when prices are low compared to the companies that they are actually backing. Investors who see legitimate long term value in it jump into the market and start buying stocks. This buying pressure pushes stocks upward and other people start buying stocks to get into it.
As more and more people start buying stocks and the prices start heading higher even more people want to get involved in this gold rush so they jump in and start buying stocks.
As stocks continue to head up suddenly people start to think that the world is getting better and that the stock market will never crash ever again.
But in the end the market simply cannot sustain the higher prices forever. One of the main causes of the great depression was that the prices were simply too high and needed to pull back at least a little bit to come back to a realistic level.
Eventually smart investors come to the conclusion that holding securities that are trading for more then what they are worth really isn't a good idea. So, they sell their stocks and that pushes the market down. This leads to panic as people see stocks go down for the first time and the public begins to sell their shares bringing the economy crashing.
Eventually the "gurus" stop trying to call the bottom of the stock market and everyone thinks that the world is ending. One of the free stock tips that people tend to give is to start investing your money during this time because it is usually when the bottom hits and we start going up again.
While stocks are still pretty cheap compared to what they are really worth new investors start to jump into the market and buy as much as they possibly can. This leads to another bull market which leads to people jumping on board the gold rush. This cycle repeats over and over again.
