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8 Things You Didn’t Know About the Stock Market

by Rebecca Black on June 14, 2012

The stock market is an ever-evolving machine, and investors are always trying to get a better understanding of its workings. Being able to accurately predict stock market fluctuations is a coveted skill. While it may not be possible to get it right every time, taking the time to understand a little bit about how the stock market works can be extremely lucrative. For an investor, paying close attention to stock market trends can be the difference between agonizing losses and fruitful gains. These eight observations concerning the United States stock market may help you garner insight into your own personal investments.

  1. Twitter predicts stock fluctuation

    If you’re looking for a way to predict losses and gains, you may be able to decipher based on conversations taking place on Twitter. The University of California, Riverside conducted a study that shows companies that are more commonly discussed on Twitter perform better in the stock market. The more information about the company that is divulged, the better. If discussion about the company is limited to a mere couple of news items, it generally does not perform as well. Thus, we can deduce with some fair accuracy how the stock market will perform if we take some cues from social networking.

  2. Millionaires are pulling out of stocks

    A study published by Phoenix Marketing International posted to the Wall Street Journal indicates that millionaires are withdrawing money from their financial investments and the number of millionaires looking to add to their investments has dropped. In the next three months, the study shows that 12% of millionaire investors will pull money out. Last year, only 7% pulled out from their investments. The study also showed that millionaires currently have a good feeling about the future of the economy. Fifty-three percent of millionaire investors are approaching the next three months of the stock market with optimism, contrary to the meager 34% in December.

  3. College degrees return more

    If you’re trying to decide between investing in college and investing in the stock market, studies have shown that your degree will be the better investment. The Brookings Institution recently released the study, which shows that in terms of long-term investments, stocks, bonds, housing, and even gold are less fruitful than getting your college degree. This was deduced by numerically comparing the two. A four-year college degree returns the equivalent of a 15.2% investment return from one year in the stock market. College may require a significant amount of money up front, such as tuition, room and board, and food. However, the investment is well worth it, as a 22-year-old with a college degree earns an average of 70% more than someone with just a high school education.

  4. Presidential elections influence the stock market

    A study conducted by Ned Davis Research between 1900 and 2009 shows that the last two years of a presidential election cycle are also the best years for stock trends. The fact that presidents have an effect on the stock market isn’t all that surprising, though. If the nation’s economic policy is directly linked to the nation’s leadership, it makes sense that you’d see it in stock market fluctuations. According to the Stock Trader’s Almanac, stocks have only fallen by more than 5% on six occasions during election years. Additionally, when the political party in power at the time has won the election in the past, the Dow Jones industrial average tends to rise by 1.5% in the first five months prior to the election.

  5. Verbiage indicates bubbles

    You might be able to spot a stock market trend simply by paying attention to the particular verbiage used by stock reports. A recent study submitted to Science Daily inspected 18,000 online articles published by the Financial Times, The New York Times, and the BBC and noticed a trend in the verbs and nouns used by financial commentators immediately prior to a stock market bubble. When financial analysts and reporters repeatedly used the same phrases as one another to describe the market, such as “stocks rose again,” “scaled new heights,” or “soared,” the stock market was generally overheated. After a crash, the similarities in language tend to subside.

  6. Testosterone drives the market

    Forbes published an article about a new study conducted by the Proceedings of the National Academy of Sciences showing that the traders’ hormones correlate strongly with the activity in the stock market. For example, men with higher testosterone levels in the morning tended to have higher profits that day, showing that testosterone could be the predictor for daily losses or gains. Likewise, testosterone levels continue to rise after a win, promoting traders to contribute to a stock market bubble. On the other hand, the stress hormone cortisol causes us to avoid risky behaviors. So when the stock market crashes, traders may perpetuate the losing streak by making decisions they see as less risky.

  7. People invest less in women

    When analyzing stock market activity, you may not see many companies spiking the markets that are led by women. Researchers at the University of Utah found that people are less likely to invest in a company if they know that a woman is in charge. It doesn’t matter if she’s exceptionally qualified; people simply see investing in companies backed by women as a less attractive option, and feel that they will not get the returns they desire. This can be detrimental to any company with a woman CEO in the stock market. As researchers put it, “If companies led by females are disadvantaged in their ability to raise cash through the stock market, it can impact the viability and financial health of their companies, their ability to expand and compete in an increasingly global and competitive environment, and, if they are unable to remain viable, their employees’ livelihoods.”

  8. The stock market appeals to kids

    According to an article posted to Scholastic News, the New York Stock Exchange is interested in educating the youth about finances and the stock market, a concept some adults don’t even entirely grasp. The New York Stock Exchange Foundation sponsored the NYSE Financial Future Challenge in 2010, which was a contest geared at kids in which they created a product that would get young people thinking about finances and investing. The winner of the contest, 12-year-old Fabian Fernandez-Han, created a smartphone app called Oink-a-Saurus that would glean information about kids’ spending habits and tell them how their money could be used more wisely by saving or investing it. Fabian was awarded $2,500 and got to ring the bell at the stock exchange on January 11.

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