If several years of slumps, slides and sluggishness in the stock market has you in the habit of looking away, you might want to check in with your old friends the Dow Jones Industrial Average, the S&P 500, and the Nasdaq to see how they've been doing lately.
In the past 12 months, the S&P 500, an index reflecting 500 of America's biggest enterprises, has soared some 34%. The Dow Jones Industrial Average, tracking 30 major companies, has performed similarly. And the Nasdaq Stock Market has soared, rocketing ahead by more than 70%.
This is good news indeed for those eager for advances instead of declines. But for many of us Fools, there are reasons to put the champagne back in the cupboard. For example:
- One strong year doesn't mean that the current bull run will continue. No one knows what will happen in the stock market in the short run. Next year could well see a big crash -- or not.
- Even though the market is rebounding, that doesn't mean many stocks are bargains now. Plenty of wonderful companies that a Fool might reasonably want to own, such as Wal-Mart
(NYSE:WMT), Starbucks (NASDAQ:SBUX), Southwest Airlines (NYSE:LUV), eBay (NASDAQ:EBAY), and Electronic Arts (NASDAQ:ERTS), are not trading at super-compelling prices.
- If you're an investor with many years left to invest, you are probably a net buyer of stocks and not a net seller. Thus, though you may wish for higher prices so that you can see a larger paper gain (i.e., one not yet realized since you haven't sold), you're likely better off if the market falls and falls, giving you the chance to snap up more shares of great companies at more attractive prices. You should be wishing for stock prices to be high chiefly when you want or need to sell -- which might be 20 years from now.
In general, it's good to know what the market is up to, though obsessing over every little rise and fall is a rather worthless exercise.
And if you're now fired up to find some promising investments for the years ahead, check out our suite of investment newsletters.