On July 2, 2020, from John, G. … ON, Canada
I’ve been reading an article on the 200-day moving average of the the stock market. The DOW is now below the 200-day moving average indicating a bear market. Do you put much weight in this? Is there a good website to watch this?
Monday Morning Millionaire Program Answer:
In its broad context, the answer to your question is an important one.
Moving averages are one aspect of technical analysis. If you look up “technical analysis” on Amazon.com you will find over 10,000 books on the subject. (There are over 8,000 on Amazon.ca.)
There are more than 10 books specifically dedicated to the subject of the 200-day moving average!
Technical analysts only look at past security prices and trading volume. They try to identify chart patterns which they feel predict security prices.
There is a very small number of investment books that are highly respected by the knowledgable, the financial academics and the ethical financial advisors. Examples:
- Security Analysis by Graham and Dodd
- The Intelligent Investor by Benjamin Graham (Warren Buffett’s mentor)
- A Random Walk Down Wall Street by Burton Malkiel
- Anything by John Bogle
If any of them mention technical analysis at all, it is in a negative vein. The reason why all major banks have technical analysts on their staff is because the demand for technical analysis is high.
If investors fully memorized the thousands of books on technical analysis, they could not equal the simple act of buying an exchange-traded fund which parallels the S&P 500. Rocking chair investing, watching-grass-grow and watching-paint-dry style of investing is best.
Warren Buffett: “lethargy bordering on sloth remains the best investment style. The correct holding period for the stock market is forever.”
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