Wow, what a day. I hope many of you were able to join us on our conference call this morning. If not I will try to summarize what we talked about below. First let’s try to figure out just what happened today. After overseas weakness, stocks were set to open steeply to the downside this morning and they did indeed. In the first five minutes of trading stocks fell 1089 Dow points. How does that happen? Well, in the old days, (yes I’m old) specialist on the floor of the exchange didn’t open trading on a stock until they had buyers and sellers lined up, at whatever price that might be. Not today, the poor souls who dumped stocks on the open found no bids at all. Many stocks fell to absurd levels, totally sticking it to the panic sellers, who got filled at these awful levels only to see the shares that they sold moments ago trade 10% higher in minutes.
After the massive drop in the first five minutes, stocks rallied about 500 points in the next five minutes as bids began to appear. As the morning rolled on, stocks recovered very near break-even levels, only to see selling reappear in the afternoon. All in all, it was an exhausting day of trading. By the close, the Dow Jones Industrial Average was down 588 points to finish the day at 15,871. The S&P 500 was down 77 points to close at 1893. Gold was down $6 to trade at $1152 per ounce, while oil was down $2.21 to trade at $38.24 per barrel WTI.
As for our conference call this morning, the main takeaways were- 1. The biggest enemy of a successful investment plan is emotion. 2. Volatility is the price of admission when one wants to grow ones money. (staying in cash will eliminate volatility, but purchasing power erodes via inflation). 3. Volatility should not be confused with loss. The S&P 500 went to 666 in March of 2009 only to more than triple by this spring. Those who didn’t sell, not only didn’t lose any money, they made a lot of money. They experienced volatility, which is the price of admission, but they didn’t experience loss. 4. We have noted in previous quarterly outlooks that the economy needed to catch up with the markets (or better said earnings need to catch up with prices), and to date the earnings/economic picture has been lukewarm at best. 5. China is leading the global slowdown concerns. 6. Is this a correction and when will it end? Obviously we can’t predict when this will end, how low stocks will go, or how fast it will happen. In the long scheme of things, it doesn’t really matter. 6. Only if you are in the withdrawal mode in your retirement years will you be affected. And you should already have a plan for times like these. 7. Since WWII we have seen 19 corrections. The average amount has been 14% and the average time has been about 5 months. Once again, it’s normal. Not fun, but normal. 8. Finally, please ignore the gloom and doom on TV. They are trying to draw your attention with hyperbole and fear. Fear sells, but it is the enemy of a sound investment plan.
Hope everyone has a nice evening. We’ll be back at it for you tomorrow.