After the last burp of air was released from the bursting of the technology bubble in 2000, most investors revisited their investment strategies in hopes of learning how to avoid the next crushing blow. There are two kinds of cycles that exacerbated market losses--structural and cyclical. The former caused a shake up of common investors' approaches to investing.
Cyclical change is the natural tendency of industries, sectors, and companies; they go through growth, maturity, and decline phases. For example, an innovative product comes to the market. At first, there are few (if any) competitors, allowing the producer to charge high prices. The second phase attracts new competitors due to high margins, which eventually leads to crunching of margins. Eventually, competition forces prices too low and some companies leave. Most investors are fully aware of cyclical changes and they try and capitalize on each phase with their investments.Structural change is an overhaul of a current system. With the advent of technology came a drastic change in our economy. The increase in efficiency eliminated jobs of physical labor, while paving the way for new jobs in technology, i.e., software, hardware, programmers. This shift causes labor displacement, causing the need for retraining, and lofty salaries to attract highly skilled professionals from other industries.Eventually, the industry could not sustain the hype, which led to the bursting of the bubble. Many companies went out of business, affecting the portfolios of millions of Americans. Many people saw their entire life savings wiped out in just a few months.In addition to the structural change of the economy, there was a structural change of investing. Most Americans worked outside of finance, and therefore depended on financial advisors, consultants, money managers, and analysts to handle their investments. The strong reliance on professional advice caused some unscrupulous financial gurus to mislead the public to pad their pocketbooks.The New Trading Favorite
After it was revealed that many analysts favored companies that had investment banking relationships with them, investors wrote off their recommendations. Additionally, a lot of stockbrokers took advantage of the excitement of the technology craze by churning their clients' accounts. Consequently, many investors lost faith with the advisory and analytical facets of Wall Street.The final blow came with the tricky accounting used by CEOs to overstate company earnings. Some of Wall Street's behemoth companies, like Enron and Global Crossing, came crashing down. All three events led to serious declines in the stock market and a severe decline of investors' appetite for Wall Street.A fury of lawsuits and allegations wasn't enough to entice investors back to the hand that slapped them. They decided to take control of their own investments. A huge flow of capital from the major brokerages to low, fee-based firms followed. Computer programs developed to help common investors make sense of a plethora of daily financial information. Day trading systems provided the fluidity for average investors to handle their investments and maintain their day jobs. Now more than ever is the demand for quality, do-it-yourself-investing systems. More and more retail investors are turning to currency investments to satisfy their financial objectives. As a more efficient market for day traders, the foreign exchange market provides investors with great opportunities to capitalize on a daily basis.
