All right, perhaps panic is too strong a word, but my goodness, it certainly does feel like one. The Dow Jones Industrial Average fell 5% today and is now down 30% since January 1. The S&P 500 is down 33.7% year to date and the NASDAQ is off 35.6%. This is indeed a bear market, but there is nothing rational about it whatsoever.
The sell off appears to be about nervousness investors are feeling about the future, the global economy, the bailout, corporate earnings. I try to keep a cool head, but the Dow is down 800 points in two days and even I wonder where it’s going to end. Then I remember what Warren Buffet said: “It’s never as good as it appears and it’s never as bad as it appears”. I need to remember that.
Stocks are selling at such a discount that there is no way the current prices are justified. I’m not suggesting that there aren’t some risks inherent to investors right now. But everything’s getting hammered, solid companies as well as weak ones. As I look back on other “corrections”, 1987, 1998, 2000 – 2002, I realize that we’re going through what I like to think of as an economic colonoscopy. It’s very uncomfortable when you’re going through it, but you’re glad when it’s over because you know you’re good to go for a while. This is a cleansing process of 20 years of market excess. I just wish it was over.