Tuesday, August 9, 2011

Stock Market Crashes Are Opportunities....Period

Thanks to the great Andrew Tobias (one of my favorite writer/authors and longtime treasurer of the Democratic National Committee) for the link a couple days ago (at the very bottom of that column, in his mention of SIGA).

Here's what he had to say today about the stock market plunge:
"The sun will come out tomorrow. (If not literally tomorrow.) Long-term, our little gaggle of mostly biotech speculations will be hurt only if people stop getting sick...or stop wanting to get well...or the government sharply cuts health care costs. The latter might happen if it decides to negotiate drug prices. And I hope it does. But I doubt it will negotiate so hard as to kill the incentive to develop important new drugs.

If you have money you can truly afford to lose, and have not yet dipped your toe in these waters, you’ll be pleased to know these stocks are now on sale. (Stocks like DVAX, CBRX, SIGA, TTNP, YMI, KERX, ALXA, and FCSC – maybe even DCTH – among others.)


In any event, I would not be selling here, even though the market could certainly fall further.
It's no surprise that I agree completely, since I learned most of what I know about investing from Tobias' classic book on the topic (he was one of my biggest influences as a writer, as well).


Anonymous said...

well... false.

If you were fully invested in the market before the crash, you would still be fully invested in the market after the crash, so you would not see any opportunity. (except the opportunity to cash out, which is the opposite of what you are recommending)

It's not just a "technicality" either, as you generally should be fully invested, so you generally should not see any opportunity.

Jim Leff said...

1. There are many good reasons why someone would not be fully invested at any given time.

2. Crashes seldom effect all assets evenly, so if you're diversified, it's usually feasible to reallocate in order to grab bargains

3. Tartly arrogant openings from anonymous surfers seldom lead to thoughtful consideration. You may want to reevaluate your tone if thoughtful consideration is your aim.

Anonymous said...

I don't agree that there are many reasons not to be in the market, but in any case what is important is how much time you spend out, not the reason. Say the market returns on average 10% a year; if you are out for 10% of the year, you will see returns that average 9%, that's inescapable.

The only obvious reason to be out of the market beyond transactional friction is if you "know" it's going to go down, but if you can reliably predict that you don't need to take anybody's advice. Are we in that situation here?

2. For the majority of investors, a market crash does not offer new information that would lead to a rational portfolio reallocation. You'll note that the article you quote is touting the same stocks that were touted before the crash. What changes, your willingness to follow that advice? I'm guessing that you are defining "bargain" as "dropped a lot"? That will generally lead either to increasing the beta of the portfolio, or picking stocks that the market doesn't like in a recession (or whatever) and that is probably a bad idea.

3. Better to consider ideas on their own merits, you're more wrapped up in what you perceive as the other party's arrogance. To each his own. If my alcoholic doctor tells me I drink too much, I have a choice whether to consider how that applies to me, or dismiss it because he's a hypocrite. Lord knows, if he has cancer he better not try to tell me I have it! Another cigarette?

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