More and more I am coming across the following question:
“I’m new to the TSP and would like to be a little bit more involved but I don’t know the first thing about the stock market. How can I stay involved in the stock market and learn when to move in and out of the market?”
What Is The Stock Market?
The first thing you need to understand is that the stock market is comprised of businesses not pieces of paper that lose value and gain value but actual businesses. The stock market in itself is an actual “market” where individuals can exchange pieces of businesses (stock) at an agreed upon price. This agreed upon price is what makes the value of a stock rise and fall throughout time.
How To Value A Stock
Now that we know what the actual stock market is how do we go about valuing and analyzing the stock market to influence our future decisions?
If you’re going to analyze and understand the overall stock market then you need to understand how the businesses work and how to evaluate a business. Please remember the basic premise of a business is to develop a product or service, then sell that product or service at a higher price than what it cost you to develop. Plain and simple or in other words you want to make more money than you spend. Understanding this concept is generally all you will need in order to understand the concepts of the stock market from an investor’s standpoint.
What TV Show Can I Watch To Understand The Stock Market?
No television show is going to accurately tell you which way the market is moving over time. Quite frankly you would be better off not watching or reading any mainstream news network in regards to the overall stock market. You have to understand that the stock market is literally a trillion dollar market and people make a lot of money off of stirring up your emotions. There is no way that a single job report or any other outside event can directly affect the entire stock market. It simply cannot happen yet time and time again we read headlines on big news networks stating “X happened and therefore Y is happening in the stock market.” There is no scientific proof that directly correlates X’s action with Y’s result, therefore you would be better off not listening to mainstream talking heads about daily gyrations in the stock market.
Instead I would suggest you focus your efforts on a more long-term view of the stock market. Particularly learning how to identify and analyze long term market trends. These long term market trends will be identified as bull markets or bear markets.
A bull market is when the price of equities increase over time and a bear market is when the price of equities decrease over time. Having this investment approach will likely save you tons of headaches, heartaches, and years on your life. Trying to identify which way the market will move day in and day out is a recipe to drive yourself crazy, believe me I’ve tried it.
Understand that the stock market is not a casino where you buy low and sell high. The stock market is where actual pieces of businesses exchange hands. The Thrift Savings Plan does not allow you to invest in individual stocks but the C Fund, S Fund, and I Fund all hold equities in the U.S. stock market. When evaluating the overall stock market it is extremely difficult to get a firm perspective on the market trends when you follow daily movements. Instead you should focus on long term market trends and use them to determine your investment decisions. This is the strategy we use to approach the Thrift Savings Plan and doing so has allowed our subscribers to make money hand over fist confidently and without a tremendous amount of risk.