Remember speed kills! This crazy market was up something like 5% today and then ended the day at a small loss. Like a fast car, it did zero to 60 in 5 seconds (Must be a McLaren!) Then, someone hit the brakes in quick order.
I don't know about you but I think it is a great time to be firmly buckled in with a margin of safety. This volatility is around to stay, in my view, for a number of reasons. Volatility gives lots of people heartburn, but there are two sides of every coin. With this level of volatility, there are huge opportunities for over and underpricing. This is what I see going on:
- The application of systematic trading methods is causing sharp and severe market movements. Does anyone really think the collective market was worth 5% more this morning than at the close? Systems for trading often only exacerbate market movements driven by the system programmer's behavioral biases. On the plus side, the quick slide up to March 23 threw a lot of "babies out with the bathwater". Child services surely was called! But…you have to keep your eyes open or you can miss it, like a shooting star.
- People's expectations of a continuous and accelerating improvement in all aspects of our world isn't sustainable. People will soon be expecting their packages "beamed" into their house. The positive side of this is when the majority of the "crowd" is disappointed about short-term news, opportunities "come out of the wood work." Keep your eyes peeled! Those with 3 to 7 year time horizons can clean up. You can be sure that Buffett was "like a kid in a candy store" prior to March 23.
- Today's climb and fall was probably a "dead cat bounce" in a bear market. Traders were trading it to make some back for the big hits they have taken recently, while people who still wanted a door out, used it. We are just about to get into the earnings season and it's going to be uglier than Fred Sanford thinks Aunt Esther is. Add on a lot of bad economic reports such as unemployment, industrial production, consumer confidence, etc. and Aunt Esther will look like a beauty queen. Now is not the time to jump off unless you want to convert paper losses to real losses. In fact, it is likely the future news will drag this market back down again. "Blue light special, Isle 9!"
So buckle up, keep your eyes peeled and your gaze on the horizon. Remember not to constantly watch the road just beyond your hood, but keep your eyes way ahead of things.
Stay safe and click it!
