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EScroogeJr (< 20)

still no bargain



March 01, 2007 – Comments (0)

Another Black Tuesday whose significance is being grossly exaggerated. "The major selloff", "The biggest drop since 9/11", "the market correction" that everybody is talking about is really a storm in the bucket.

Yes, 3% is a record one-day drop. But the word "record" sounds impressive only until you realize that it's a record in a hotly contested competition. Indeed, 2% drops are very common, and having a several such drops in one month is not that unusual. Does 3% really sound that much more dramatic than 2%?

What if the market chose to shave that 3% off in 3 days, 1% a day? We would have exactly the same result, except that nobody would say that anything unusual is happening. But I don't see why 3 days is better or worse that 1.

The term "correction" is equally misleading. One bad day is not a correction. A correction should take us down by 10% or more. Another matter is that this might signal the beginning of the correction. One of those signals that you get once a month until one of them turns out to be true.

Of course, we are also going to see the opposite but equally illogical reaction from people who are ready to buy overpriced stocks for no other reason that they are a little less overpriced than a weak earlier.

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