One step at a time

In the beginning, my knowledge of the art and science of investment was limited to “Buy shares at cheap prices, then hold them for long time, when the prices are up, sell them for a profit.” That’s the length and breadth of my knowledge in investment. Sounds very simple but as it turns out, it is also fundamental in any profit-seeking business enterprise.
Stock price Index and average were even more nebulous concepts. I only knew them as a bunch of numbers that went up sometimes and went down at other times. And I did not have the faintest clue why the market is called bull market sometimes and bear market at other.
Subprime market meltdown of recent days led me to take a look at this complex world of investing. It seems DJIA had its beginning in the 1890s and its early days the average was in 40s. By 1987, it managed to rise up to only in 1000s. Its phenomenal rise to its current levels, however, happened only in the last twenty or thirty years. Just prior to the dot-com bubble burst, DJIA was in 11000s and during the bust, it went down to 6/7000s. And the number has been creeping up to its current levels ever since. Also, I noticed that, never in its history did the average ever go below zero. In order for that to happen, the world probably has to come to its end. And what are the chances for that to happen? It is true, during such economic downturns companies with weak financial structures do go out of business. And companies which survive such bad times usually manage to pick themselves up and move on and up. Historically, economy and therefore the market always bounced back. Most investors know that. They are not spring chickens. And yet, I was very surprised to see these seasoned investors rushing out of the market at frantic speed during the recent market turmoil. My guess is, on the way out, some definitely sold their perfectly good stocks at whatever price they could get, thus violating the basic tenet of profitable investing. That tenet is buy low and sell high. If they invested in good companies, wouldn’t it be better to have simply stayed in the market? Good stocks seem to take care of themselves in the long run anyway.