A falling stock market is not bad for everyone. Sure, many investors lose out as their portfolios decline in value, but those who are just starting to invest or have underweighted equities can benefit from lower valuations, which tend to deliver higher returns over the long term. Naturally, equity markets do not fall without reason. As the economic environment changes, so do expectations. The positive feedback loop that sends valuations rising eventually reverses course and turns negative. But at some point, economic and business conditions stabilize and valuations come down enough to attract new investors and lure old ones back in. For instance, companies with anticyclical business models can increase their appeal by raising their dividend payments. But not all securities markets exhibit the same dynamic as that of equities. For example, the Italian lira consistently lost value against the Deutsche Mark for decades before both currencies were merged into the euro, and currencies can effectively become worthless when hyperinflation sets in.
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