Thursday, May 6, 2010

Yessiree, Crowded Exits Are Painful

It might have been caused by a trading error at Citibank, executed by a computer, and compounded by mechanized sell programs, but it was still illustrative of fear. Investors have been staying far too invested, even when they knew they were in the danger zone, because prices keep climbing and they had a false confidence in their ability to exit before trouble was recognized. Today's market action proved them wrong. Everyone wanted out at the same time. Fear was in charge.

While the market was crashing today, I was at a memorial service for a friend that had passed away. It was a beautiful service and the family was comforted. I was enjoying the ride home until the phone rang and a distraught friend told me the Dow was down 1000 points. Now I was sad again. I was short a few positions and owned gold ETFs, but my long portfolio would suffer more than the negative bets would help. Intellectually, buying stock then would have been scary, but proper. I was a long way from a computer, so I went to lunch. By the time I got home the Dow had gained back 600 points and ended as just a crummy day, not a disaster. Tomorrow is not a day to pick up bargains. If the market does rebound, enjoy it and consider lightening up some positions. Fear has raised its ugly head and she isn't pretty. The exit is also real small. Getting through is difficult.

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