“A word of advice, my sweet Emmett – mourn the losses because they are many. But celebrate the victories because they are few.” -Debbie Novotny.
Bank of America fell almost 21% on a particular single day during the 2009 Financial crisis. So are other financial institutions (see the picture below). This is one of the worst trading days during the 2009 banking crisis. The Dow Jones Index fell more than 5% on that day.
It was a wreak havoc!
It was a sad day. All of the investors were drowned in mournfulness. On the other hand, I was watching it from the shore and laughing at it. Thankfully, I was a poor fellow at that time (well, still am!) and had nothing invested in stocks. Sooner or later, it will repeat in one form or the other. It’s just a matter of time. Apparently, that is the nature of the stock market.
If that day repeats now, I will not be laughing.
A flash crash, also known as a sudden, and deep movement of stock price is another thing which scares people. Sometimes they recover within a short moment, however, the one lasting for months and years are what kills investors.
The flash crash that I have experienced is in 2010. On May 6th, 2010 the Dow Jones tanked around 9% and recovered within an hour. Trillions of dollar of market capitalization were lost in a bit. This recent flash crash was blamed for high-frequency automated trading like the supercomputers trading automatically because of some bad news report or automated margin calls.
Investors can not predict not forecast these events. Therefore, we need to be prepared for the worst times like this. Well, what is the way to prepare? I believe the best way to prepare for it will be to buy the right company at the right price. Keeping a margin of safety is of prime importance for stock investors. Some historic flash crash has not recovered for years. This will be very painful financially and psychologically.
Investors should be wary that the stock might fall fast and deep. In general, yes, the stock market always move up. However, if investors are prepared for ill time, they will be rewarded handsomely. The stock market gain is slow and gradual. The stock market loss is fast and deep. Before starting a position I always keep these things in mind and you should too if you want to be a better investor.
Arrow of Performance 