Holy Crap!!! What a wild day today was. I come back after two months off, and my first day back doing the blog has the market going bonkers. I was already to publish a post on the top 5 investing blunders we make by following our instincts, but that’s just going to have to wait until Thursday, because the roller coaster that was Monday’s stock market must be addressed.
First, let’s just appreciate the utter insanity that was the market today. That chart for the Dow Jones Industrial Average doesn’t look like much until you realize that each of those tick marks is 250 points.
Sunday night most people knew Monday would be a rocky day. The Asian markets were getting bloodied, especially China’s markets (more on that in a minute). Maybe it would be another 200-300 point down day; that would suck but we’re starting to get used to it. But holy cow, the Dow opened and instantly fell 1000 points. 1000 POINTS!!! Go ahead and let that sink in for a second. When the market reopened after the September 11 terrorist attacks, it didn’t fall that much. 1000 points.
At that point all the people at CNBC were having kittens, lamenting on how the market was ready to crater. But then things turned around like a light switch was flipped. In 30 minutes the Dow recovered 500 points—again just wrap your head around stocks moving 500 points in 30 minutes. Wild.
By noon the Dow had nearly recovered all its losses, all 1000 points. The talking heads had done an about face and started back slapping on how things were fine, and then stocks steadily slid 500 points over the next two hours. Just a wild, wild day.
What does it all mean?
I think pretty much everyone agrees we go hit by a Chinese typhoon. China’s the #2 economy in the world, they started liberalizing their stock markets which led to a huge bubble, and now their economy is slowing which is blowing up that new stock market. On Monday the Shanghai index was down about 10% so we should feel pretty good about things, right?
Things have been dicey for a while. Remember on Friday the Dow was down 500 points and down 1000 points last week. So things were already on edge. Monday the markets had a bit of a freak out. But how serious should we take this?
Certainly, it’s serious since the markets have lost 10% in less than a week, but I think there is a silver lining that we can see just in the path of today’s craziness. There wasn’t a ton of news that justified the 1000 drop at the opening—it just kind of happened. Okay, I can accept it. But then there was no news that turned things around and recovered the 1000 points. That just kind of happened to. And then there was no news that brought it down again.
In a perverse way, that should be comforting. Yeah, China’s going through some tough stuff right now, but that can’t come close to justifying a 10% drop in stocks. It just seems like a mob on the streets going crazy, rushing from one street corner to the next, not really knowing where it’s going or why. Eventually those mobs just lose steam and disperse. That’s what I think will happen here.
Will it recover in a few weeks like the swoon in October of 2014? Remember that one? Probably not because it was just a hiccup. But over the course of a week stocks fell 1000 points and everyone was freaking out, but then a week later all those losses were recovered and the world was okay again. Maybe it will happen like that, or maybe it will be a longer grind like after the 2000 internet bubble.
What are you doing to do?
This is going to shock you, but I’m not really doing anything. I’ll keep plugging away with my buy and hold strategy using dollar cost averaging. In the meantime, I’m enjoying the craziness for its entertainment value.
Wait a second. That’s not entirely true. Foxy Lady and I are buying a house in Greensboro. Since our Los Angeles house hasn’t sold yet, we’ve had to sell some stock for the down payment. I look at it as a temporary thing because once the LA house is sold, we’ll reinvest the money. The good thing now is we’ll reinvest that money at a discount.
But that horseshoe did its work. We sold most of the stuff we needed over the past few weeks, so we avoided all this carnage. So we have that going for us which is nice.
But seriously, I don’t think there is anything that has fundamentally changed since two weeks ago when everything was worth 10% more. If you can stomach it, I think this will prove a great buying opportunity.
That’s my take on what happened yesterday. What do you think?
Come back Thursday to see the post on investing blunders that I originally meant for today.