Tuesday, August 9, 2011

Stock Markets Collapse - Time to panic or a buying oppourtunity?

Ah the stock market, where everyone knows the mantra buy low and sell high.  There's just one problem, if some investors are buying low there needs to be others willing to sell low. 

Nothing like some panic, this time brought on by the debt crisis in the U.S. and subsequent downgrading of the rating for the world's biggest economy.  Scary stuff, scary scary scary.  For rookies playing the market for the first time, this is new ground.  From the spring of 2009 until now the market has been very bullish, and bull markets can make even the most challenged investor believe he or she is the next Warren Buffet. 

Recent history has shown that the big winners over the past 10+ years have been those who bought into the market when all around them were running for cover.

Perhaps today's rally is evidence of that mindset, but personally I think there's more pain to come in the broader markets.  Capitulation is a word often bandied about, and we're no where near that point yet.  When Joe Sixpack and Sally Housecoat can't take it and bail on their holdings, that's when markets typically rebound. 

Look at a chart for the past 12 years or so as we've gone from bull to bear markets in the wake of: the dot.com meltdown, the toxic debt recession of 2008 and now the latest fears about US debt levels.  In the stock market history is constantly repeating itself, and I don't see any reason to see this time being any different. 

For those who have cash when the market bottoms out, history says they'll win big. 

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