The future of the stock market
October 10, 1998 - © Copyright 1998 Sheldon M. Bell
Many investors have become un-nerved by the recent decline and increased volatility of the stock market. Investors however, should consider what changes are taking place in the financial markets today, and how these changes could affect the daily price gyrations inherent to the stock market in the future.
Without the computer today’s financial markets couldn’t even exist. In the early 60s a big trading day on the New York Stock Exchange was less than 50 million shares. Today a billion shares can trade on the big board in one day. As computer power continues to grow so will daily volume. In addition, as more investors utilize their PCs to trade stocks the potential for increased daily volatility also increases.
But is the daily price volatility bad for the stock market? The answer to this question is not so simple to ascertain, as daily price volatility in the future may not be daily, but from second to second, if the financial markets never close in the future. That’s right with the ever increasing computer power and automation of all aspects of the financial markets, some day soon the markets may trade 24 hours a day seven days a week. Even now many stocks are bought in the market after the close.
In addition, have you thought about the fact that when the markets "sells-off" 3-5% in one day as the media calls such an event, maybe it’s just a normal event. What other financial asset is as transparent in price and as liquid as a stock and is less prone to price swings? None that I know of.
The questions to ask yourself as an investor are. What is your time horizon for investing? Do you have adequate diversity in your portfolio? Are you liquid enough to meet your cash flow needs for the foreseeable future? If you have the proper mix of assets in your portfolio you shouldn’t let the short-term trends of price and liquidity in the stock market affect your state of mind.
If it does then perhaps you need to re-educate yourself about what the stock market is all about. Remember, that if the market does eventually trade without closing and you are a worrier, you can then worry 24 hours a day, 7 days a week, instead of just 6 ½ hours, 5 days a week of market activity today.