Life – a user's manual Part II - Boksidan

The observant viewer of charts 1 - 3 notes that most companies, especially those that were not subject to the
crisis, rather quickly was back on the track a few years after each crisis. Based on the above, the following
simple, and historically profitable, investment philosophy might be formulated:
Only buy shares in the recession and then buy in stable, but cyclical, businesses that are pulled down
by the general price decline. Preferably buy shares in companies that in the current recession have
dropped undeserved much because the other companies in the same industry (or related) has been hit
especially hard. Then sell then shares when a few years has passed of an economic boom.
It sounds simple, but many act just the opposite. The longer and steadier an upswing has lasted, the greater
risks many investors are willing to take, even though the end of the rise reasonably gets closer and closer.
While they during the stock market decline is too cautious.
Facts box in an article about savings during
the economic crisis in Greece in May 2010.
According to it, we sold more shares than
what we bought. Although the majority of
the stock exchange company in the spring
and reported rising profits and despite the
fact that the Greek economy has relatively
little impact on the world economy. The
behavior suggests that after the last year's
decline in the stock market people has
become more cautious.
One way to strategically deal with the fact that it is not until afterwards possible to knew when the
top/bottom was reached, is to act according to a well known roulette strategy. Which works as follows: start
by investing a certain amount, say 100 SEK on a choice like red/black. If the bet is lost, bet 200 SEK. If thar
also is lost, bet 300 SEK. The point is that when gamler finally wins, he will get back everything he lost and
win some. Translated into purchasing shares in a period of falling stock markets, the strategy could look like
this:
You have 15 000 SEK and you would like to buy shares for these. When you first think it's time, you invest
5 000. If the shares go up all the time you have made a profit and can be satisfied. If it continues downwards,
you invest an additional 5 000 and hope it turns around. If it does not you can also take advantage of this,
and get more bang for the last 5 000.
The catch with the simple reasoning about buying in a recession is, beyond that it will take a long time, that
when there is a sale on the stock market, there is no money and when there is money, many are too eager to
wait and invests despite the economic boom. In the latter situation, it is much more important to buy shares
in the right business. Unlike the situation during a recession, as it generally is possible to make money on
shares in any of the large stable company that have fallen much.
Some companies will rise regardless of the economy and some will fall even in the midst of a boom. That's
because they have done some kind of success, respectively a failure. Most often, however, they are small
companies whose rise or fall does not affect more than a small group of investors (and, of course, the
corporate’s employees). And their fates on the Stock Exchange does not say much about the stock market in
general. To reflect this, the small companies are more or less removed from the data that shows how the
market goes. This is done through a system called "stock market index". The system is based on the larger
market capitalization the company has, the greater the effect of price changes in the company has on the
stock market index. Unlike the mean values in graphs 1 and 2. So when it say’s in the papers is that the stock
market for examplehas risen one per cent, it means that the stock market index rose one per cent and that in
turn means that the majority of the few really big companies have risen. The small companies, however, may
largely have gone either way.
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