Bill Poulos is a seasoned investor. He has been analyzing the stock market for over 40 years. From what he has learned over the years, Bill has authored multiple books and educational training programs. Below he offers insight into what moves the stock market.
In the stock market you’ve got all sorts of companies that are available to be traded — from stalwarts that have high market caps, high dividend paying stocks, high growth stocks to absolute startups from out of nowhere that can also command a very high market cap just because of the enthusiasm around the new opportunity.
In the final analysis, all stocks are driven by fear and greed.
Fear of missing out of an opportunity.
Greed around holding onto a stock for too long a time or causing a stock with no earnings to skyrocket, in the hopes that the greater fool will buy the stock from you.
Fear and greed drive the market, whether it’s a sound company or a company that no one’s ever heard of.
What seasoned investors will typically do is stay away from no earnings companies — companies that no one has heard of.
Seasoned investors will usually stick with big market companies — large market cap stocks, medium cap, and then some small cap stocks — but companies that have a demonstrated record, whether they’re paying dividends or not.
Speculators will gravitate towards these IPOs — initial public offering related stocks to highly speculative stocks — that have no earnings and that have been out there for some time.
This all came to fruition in the dot com craze where the joke at the time was, “if your company has earnings, that’s a shame because now a price earnings ratio can be calculated, and the company’s weak position exposed.”
Up until the time that a company actually forced its first earnings, you didn’t have that problem. As a result, the stock price went up, and up, and up, and up.
But of course, you know the story — it all came crashing down in 2000, 2001.
That’ll play itself out over and over and over again, company by company, stock by stock.
These speculative stocks with no earnings will go up fast. They go up fast and then come down — just as fast.
Where you are left in the end depends on if you. Are you a speculator? Are you a seasoned investor? Or are you the complete novice that gets clobbered time and time again, chasing stocks that you have no business trading?
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