Today’s Panic Selling

Posted on May 06, 2010

As you certainly know, the US stock market was in crash mode today, losing more than 8% at some point. I have not seen such panic selling since the top of 2000. The recovery that followed was spectacular as well. Only time will tell if the bear market is back or the uptrend will resume.

I hope that subscribers were not surprised by this (temporary?) downturn as this was absolutely predictable (the downturn, not the panic selling). We alerted our subscribers about it in an email alert sent and posted on our website ( on March 23. Here is what I said at the time:

“This is just a short update to let you know that we have not added new stocks to our portfolio recently as the market is extremely overbought right now and the odds for a downturn are very high.

The Nasdaq 100 index had 17 up closes during the last 19 trading days and the ‘NYSE New High New Low Indicator’ ($NYHL) made a new high at about 550 points two days’ ago. During this market rally (March 2009 – today), EVERY time this indicator made a new high, it was shortly followed by a maker downturn. Several other indicators we follow show that the odds for a market correction are very high.“

From the time we sent that alert, the market continued to stay on the extremely overbought territory for 3 more weeks, but the inevitable happened. What is important is that at the start of the downturn (April 26), our portfolio was 80% in cash and we were 90% in cash before today’s panic selling.

Why am I writing this? It’s because every time our portfolio holds a significant amount of cash, I get a lot of emails from subscribers complaining that they are paying a monthly fee and do not receive enough buy alerts. During those times, I am under the impression that most of our subscribers will be extremely happy if we issue a record number of buy signals everyday regardless of the returns generated. It is obvious that most people are after the excitement of buying and selling stocks, not after generating positive returns.

If you are one of those investors, you should remember that investing is about making money, not about excitement – making money implies risk management and taking a bet ONLY when the odds are definitely on your side. Sometimes, doing nothing is the best investment decision you can make. The reason we were 90% in cash before today’s panic selling was because the odds were completely against us and the best thing in such cases is to stay in cash.

This is basically how we managed to post great returns both in 2008 and 2009. We will not change our system because of the record number of people that unsubscribe during those times.


3 Responses to “Today’s Panic Selling”

  1. Greg Flippo on June 27th, 2010 10:48 pm

    Am I being punk’d?

    Paid $47 for a stock investing newsletter to be told to stay in cash???

    My 14 year old knew to buy F at 4.50 when GM tanked – you guys didn’t see it? Buying F wasn’t for the excitement it was because it made sense and has returned 135%. There is money to be made – you guys are so scared to have a negative return and lose subscribers that you handcuff yourselves.

    Maybe you should offer a conservative portfolio like the current one and one for investors that understands that for great returns there are some risks.

    Anybody can make money in a bull market – this is where you can separate yourself.


  2. admin on June 29th, 2010 9:40 am

    Greg, not trading is also an investment decision. We think making money is not about trading all the time, in any market, making money is about investing when the odds are on your side and they are not right now. Our service started almost at the bigging of the worst bear market in our lifetime yet we have generated impressive returns and this was possible due to very strict money management rules.

    We stay mostly in cash right now because our system tell us to do so not because we are afraid to loose subscribers. Actually many unsubscribe when we go in cash because they are concerned about the $47 they paid for ‘nothing’. They don’t realize this can save them a lot of money. Those who realized it and done nothing when we told them to do so generated impressive returns over the last 2 years, those who didn’t (like the vast majority of investors and money managers) lost half of their portfolio.

  3. james moylan on March 15th, 2011 12:09 pm

    I have a web site where I research stocks under five dollars. I am a astute value investor. I would like to comment about ford motor. I think ford motor is a much better company than general motors . I think ford motor is still a bargain at 15 dollars a share.

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