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Health & Fitness

Selloffs, Corrections, and Bears

It is not a secret that the stock markets around the world have been suffering losses during the last several weeks - markets from Japan, to European exchanges, and U.S. domestic markets have all suffered significant selloffs during the recent period. With all of the speculation that is occurring via the marketplace, financial media, and other venues, it seemed a good time to review a few of the more commonly used phrases and terms used to describe marketplace selloffs.

Correction - a negative movement, of at least 10% in stock, bond, commodity, or index. Usually temporary price declines interrupting an uptrend in market prices.

Bear Market -  this a market that is filled with an attitude of pessimism regarding the financial prospects of stocks and investing overall. Heavy selling and a continued falling in prices reinforces this belief.

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Short selling - selling a security that you have borrowed, usually from a brokerage. The strategy is dependent on the stock falling in price. This allows the trade to sell, repurchase and return the stock to the broker, and net the profit.

It is always worth remembering, however, that the movements of a stock or the market in general do not always reflect the true value of the firms in question. Value investors like Warren Buffet have made their fortunes by carefully buying undervalued firms in times of market uncertainty. Stock prices are a representation of what the market feels the future prospects for the firm is with regards to earnings and profitability.

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Sometimes, however, the market misjudges, is influenced by factors beyond the actions of the firm (quantitative easing for example), and the performance of stock does not always reflect the performance of the underlying business. Don't forget - Microsoft's profits and have tripled during the same period that the stock price was stagnant.

Happy Reading!

 

 

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