This past week has seen the stock markets round the globe go into nose dive. Yes, there are issues with growth and debt in all sorts of countries, the downgrade by one of the ratings agencies of the US etc etc. However, what I don't get is why all shares seem to have nose dived - including perfectly sound companies with plenty of cash in the bank, assets in the ground, sales etc. Now I always thought that if a company did well, it's share price goes up, if it does badly the share price goes down, but the amount of manipulation, shorting etc I have seen during the past couple of years I have been owning shares has thoroughly dispelled that impression!
Now, in a sense I think this is some of the same, the same traders that are selling shares - presumably at a profit from the last time they bought cheap shares - will buy on the cheap at the bottom of the markets, the share price goes up and therefore make another profit. That's all very well when you have 24/7 access to trading screens and squillions of pounds to move around at the touch of a button, but where does it leave the private investor who can't react that quickly.
I have heard that fund managers all seem to react in the same way, fearful of not doing what their peers are doing for fear of getting it wrong. Now surely a fund manager ought to act in the best interests of the fund holders, basing that judgement on their own funds and shares, not just selling when everyone else is selling.
Now, when the problem is of sovereign debt primarily, and many companies are indeed still turning a profit, do all shares suddenly become much less value?
The following link, to a sadly now defunct blog is some explanation of this