Money Heaven and other thoughts
America, and the world, will get beyond this social and economic crisis eventually. Meanwhile, it's almost cynical to be talking about the financial markets. But there are lessons to be learned from the past when it comes to the financial markets.
There's nothing like living through a bear market to give you respect for this force of nature -- of human nature. I've lived through several, and it's given me perspective.
My first bear market experience was on the trading floor of the Chicago Board Options Exchange, where I was a founding member and the first "girl" trader! The Dow Jones Industrial Average was trading above the 1,000 level - an incredibly symbolic number those many years ago.
The first options to be traded on the CBOE were on a group of stocks called the "Fabulous Fifty" -- the growth stocks of the future. Everyone assumed they could only rise in price. They were the "tech" stocks of the day like IBM and Digital Equipment, and the "consumer" stocks of the day like McDonalds and Avon Products. In fact, the floor was such a sexist place in those days, this group of stocks was labeled "The Vestal Virgins," the untouchables.
Then along came the bear market, which took the Dow to an inter-day low of 570.01. Yes, I remember the intra-day low, down to the last digit! All those "Fab Fifty" stocks came tumbling down, many from over $100/share to the low 20s and teens. It astounded me. I turned to an older trader standing there on the floor, assuming from his gray hair that he would have the answer to my question:
"Where did all the money go?" I asked.
Without hesitation he replied, "Well, my dear, it went to Money Heaven!"
No one questions the rise of the stock market or the wealth it creates on the way up. But when wealth disappears, it comes as a mystery -- or even a conspiracy -- to many people.
Once a company sells shares to the public, there is a fixed number of shares outstanding. So when the market price falls, ALL of the shareholders lose money. Yes, there are a limited number of "short sellers" in the market -- those who sell shares they don't own, putting up margin money to do so, then planning to buy the shares back at a lower price to make a profit.