Chris Oaks spoke with Fox Business Channel reporter Adam Shapiro.
Q: The stock market rebounded somewhat this week after a very bad week last week — why all the market volatility this month?
A: Well, the tech stocks were selling off last week because investors recognized the high-flyers like Tesla, Twitter and Netflix were overpriced. Even Google hit a new daily low since its stock split this week, although they’ll be just fine. And the other issue is Ukraine. Investors don’t like unrest, and traders get worried when there are shots fired.
Q: How concerning is that overvaluation of tech stocks? Overvaluation led to the infamous dot-com crash back in 2000, but the stock prices were much further out of line then than now.
A: Well, whether one should worry depends on how averse one is to risk and how you invest. If you’re in index funds, there’s really nothing to worry about — and, as Warren Buffett has said, everyone should be in index funds. The only people who should be trading individual stocks are people like Warren Buffett. So, for the average investor, the market is going to do its thing, and you’ll be just fine long term. Now, that said, if you’re 65 years old and in index funds heavy on tech stocks, it would be more concerning.
Q: Is it an overreaction now to get so alarmed when we see seemingly large point swings in the indices? After all, a 100-point drop isn’t as significant when the Dow is at 16,000 points as it was at half that level, right?
A: Well, sure, a hundred points isn’t even 1 percent of the Dow’s value. But it’s still enough to get traders’ attention. A loss is a loss, and the larger the loss the harder it is to recover. For example, the mood on the floor here at the New York Stock Exchange last week was one of perhaps the bears taking over. But the rebound on Monday and the fact that the market held on to finish with a gain on Tuesday after a volatile day of trading gave everyone optimism that there is still momentum. Had we not held on to those gains Tuesday, the fear was that Wednesday would bring another huge selloff.
Q: It does seem as though people are still a bit nervous after the housing bubble, not wanting to get caught up in that mess again. So any hint of overvaluation will trigger a selloff.
A: Sure, but the fact is there are always bubbles out there. Identifying them is the tricky part, and the genius who can figure that out will be a gazillionaire several times over.
Q: On a different subject, General Motors warned investors earlier this month to expect a significant earnings hit due to their massive ignition switch recall. Do you believe, as some have suggested, that it’s more than a coincidence the government sold off the last of their remaining shares from the 2008 bailout just a couple of months before launching an investigation of the company?
A: Conspiracy theories abound in our society, but I’m not sure I’m buying this one. First off, that would mean the National Highway Traffic Safety Administration was a willing participant in covering up safety issues, to give the government time to divest itself. And the fact is that those shares were being sold back to the public gradually over the course of two years — it’s not like they suddenly dumped everything because they were privy to inside information. I could be wrong, but I just don’t see it.
“Good Mornings!” with Chris Oaks airs from 6 a.m. to 9 a.m. weekdays on WFIN, 1330 kHz. He can be reached by email at firstname.lastname@example.org, or at 419-422-4545.
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