On Thursday, a comedy of errors (see: Whoops!) caused one of the largest same-day market crashes in history.Though largely an "accidental" meltdown, superstitious traders seemed to think that the market dive was a premonition, and they responded by continuing to sell. The crash also made the regular (non-financial) news, prompting retail investors to awaken from their post tax season slumber.
Currency Exchange employees told me that on Friday, small customers were exchanging their U.S. dollars for other currencies en masse - over $3 million in half an hour. Other clients who had their eyes glued to CNN called me to ask, half-jokingly, if they still had any money. No one was quite in panic mode, yet all were clearly unnerved.
Filling the demand for negative news, Friday's headlines were about market meltdowns, Greek debt woes, the Euro collapsing, foreclosures, and bomb scares in New York. Major news agencies completely ignored the positive news of the day, which included solid employment numbers, stellar earnings for conglomerate Berkshire Hathaway, and the fact that AIG (which received $182 billion in government aid) has returned to profitability. This weekend more negative news stories are scheduled to be broadcast, including CNBC's "Markets in Turmoil: Is your Money Safe?", which should add further to investor angst.
In just two short days, the U.S. market has gone from potentially-overvalued to definitely-undervalued, and the selling may not be over. It's difficult to say how fast the turn will occur, since ratings for negative news can change overnight. Yet one thing is for certain: after the market stabilizes, opportunities will exist in abundance (they already do).
Despite short positions on the Chinese market, I've lost $8000 (on paper) in two days - and I couldn't be happier. I sold some stocks for cash two weeks ago and am ready for round two. Only fools are pleased when the market goes up before they are finished buying.
If you missed the first run, this will be your second chance to buy great American companies at low prices. Happy hunting.
UPDATE - The expected turnaround began on the first trading day following this article, with the S&P 500 gaining back its entire loss and more in 3 trading days. Buying at the lows was indeed a good bargain.
___
"The price of the stock must reflect a majority view that conditions affecting the company will be bad, or soon will be bad, or will continue bad."
Gerald Loeb, "The Battle for Investment Survival," explaining when to buy stocks.
