Dow Jones Crashed this Week, Historical Decline

[tuckerkao]

Any types of subtractions and divisions seem to be hard for people whether it's mathematically or emotionally.

Looks like Dow Jones is stumbling because of the coronavirus spreading and previous bubbling effects -

 

[Estebonrober]

Black Swan.

 

[hobbsyoyo]

Black Swan.

What does that mean?

I hope this is just another temporary (if extreme bump). I feel like we get those every few years and it's whatever because the stock market is like 3 steps removed from the actual economy.

 

[Estebonrober]

What does that mean?

I hope this is just another temporary (if extreme bump). I feel like we get those every few years and it's whatever because the stock market is like 3 steps removed from the actual economy.

https://en.wikipedia.org/wiki/Black_swan_theory

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild.

The theory was developed by Nassim Nicholas Taleb to explain:

1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities).
3. The psychological biases that blind people, both individually and collectively, to uncertainty and to a rare event's massive role in historical affairs.

Unlike the earlier and broader "black swan problem" in philosophy (i.e. the problem of induction), Taleb's "black swan theory" refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences.[1]:xxi More technically, in the scientific monograph "Silent Risk",[2] Taleb mathematically defines the black swan problem as "stemming from the use of degenerate metaprobability".[2]

The idea is you have an event (ie coronavirus) that post becomes the story line for why everything went bad. Obviously in complex markets like this there is a lot more going on then coronavirus, global growth had been weak for a long time and the US is in a manufacturing recession last I checked.

 

[Birdjaguar]

Any types of subtractions and divisions seem to be hard for people whether it's mathematically or emotionally.

Looks like Dow Jones is stumbling because of the coronavirus spreading and previous bubbling effects -

Thinking that the market always goes up is the problem. While long trends are up, pull backs happen and should be expected. With a 10% drop (where we are now) the questions become: should I buy or are we going to -20%? No rush to decide though. Patience is a virtue.

 

[Berzerker]

I might wait for things to settle down and buy buy buy

 

[El_Machinae]

There is a lot of corporate debt out there that needs to clear. It's impossible to figure out what that extra 5 trillion dollars is going to do in the stock market

 

[Timsup2nothin]

Quote from an article about the administration's handling of the public health crisis: "The markets provided an initial verdict on Trump's performance Wednesday; Dow futures moved from positive to negative during the news conference." The only thing I don't understand is how they actually waited for Dingbat Don to stomp a foot into his mouth. Surely by now everyone knew he was going to, yes?

 

[Hygro]

It’s like tradition. None of them are selling on the speech, they just all know everyone else will have sold on the speech so they have to.

 

[Birdjaguar]

This was in the WSJ today. It is about forced selling by institutions;

Pros Must Sell Stocks Now. You Don’t Have To

When markets crumple, the culprits usually aren’t the smallest investors, but the biggest.

So far, most individual investors have remained steadfast as stocks have been pummeled by fears that the coronavirus could turn into a pandemic. If they continue to keep their cool, small investors might even get to buy bargains as the big money bails out.

Professional investors tend to move the fastest when a market suddenly turns. That’s largely out of self-preservation, because the biggest risk they face is being so out of step with the market that their clients fire them. That can lead the pros to chase the market trend too far and too long.

“Institutions sell more than individuals when there is a large stock-market drop,” finance professors Patrick Dennis and Deon Strickland found in a 2002 study. They also showed that the more widely a stock is held by big investors, the greater its trading volume during sharp market drops.

And the stocks dumped by the biggest investors on down days tend to outperform the market over the ensuing six months. Selling by institutions when the market falls at least 2% “drives prices below their true values,” the researchers concluded.

Patience is a luxury that individual investors can afford. Money managers must focus not only on analyzing what assets are worth, but also on “anticipating what average opinion expects the average opinion to be,” as John Maynard Keynes wrote in 1936.

That’s because the pros are in a never-ending struggle to attract new funds. For professionals seeking to maximize their fees, it is rational— at least in the short

run—to buy even more of

the most-overvalued stocks when their prices are rising.

Once performance falters, portfolio managers who owned—and then sold—the most popular stocks won’t be punished as badly as those who made unorthodox picks. “Worldly wisdom,” wrote Keynes, “teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

When institutions sell, they often get rid of their most liquid holdings first, because those are the easiest to sell at the best price.

A survey of more than 16,000 individual investors by Vanguard Group shows how drastically their attitudes differ from those of big institutions. Vanguard has been repeating this survey every two months since early 2017. The results suggest that individual investors have become a major force for moderation in the financial markets. Individuals consistently expect U.S. stocks to return about 5% over the coming year, the Vanguard survey shows. That’s only half the historical average of 10% annually, counting dividends.

Among those individuals, nearly 60% forecast one-year returns between 0% and 6%, and just under 70% predict 10-year average annual returns in that same range. Professional investors often project returns in excess of 7.5% annually.
After stocks stumble, the survey shows, individual investors do predict lower future returns—but not by much. And when stocks are doing well, these investors make rosier forecasts—by a small margin.

From September through December 2018, as stocks fell almost 20%, the Vanguard investors’ forecasts of returns over the coming year fell to 2.7% from 4.8%. By February 2019, however, as the market bounced back, investors projected that stocks would earn 4.9% over the next 12 months.

But, the Vanguard survey finds, these investors don’t tend to buy more stocks when they become a little more optimistic or to sell when they turn a bit pessimistic. Unlike professionals, they often change their opinions without feeling obligated to act on them. Of course, Vanguard’s clients might be less interested than the general investing public in chasing hot returns, trading frequently or trying to time the market.

According to Vanguard researchers Stephen Utkus and Jean Young, the typical investor in the survey is 61 years old and has been a client for 17 years. The median account value is about $221,000, with about 72% in stocks. The typical annual turnover—a measure of how often an investor moves money around—is only 10%. (Mutual-fund managers trade at more than six times that rate, according to Morningstar.)

SO the people in Vanguard’s survey might be unusually placid. And individual investors, overall, have been rewarded for their patience so long that there is some risk they have turned complacent. This is the longest bull market on record, according to S& P Dow Jones Indices— running more than 131 months without a 20% decline from its latest high closing price.

Over that period, stocks have returned more than 490%, including dividends. Last year alone, the S& P 500 rose 32%.

A big tumble would shake that confidence.

Let’s remember, though, that panic is rare—in markets and in life. During the Nazi bombardment of Britain in World War II, most people remained so levelheaded that the “neurosis centres” opened by the government to counteract the expected effects of mass panic were seldom used.

No one knows how far the fear over coronavirus will extend or how much stocks will fall in response. What we can be fairly sure of is that individual investors are likely to be among the last—not the first—to sell.

 

[amadeus]

https://money.cnn.com/data/dow30/

Looking at today's Dow components the biggest individual drops were Cisco Systems, Dow Chemical, and Walgreens.
Gainers were P&G, Walmart, and AMEX.

Is there a particular reason anyone would think Cisco would take the biggest hit?

 

[Birdjaguar]

https://money.cnn.com/data/dow30/

Looking at today's Dow components the biggest individual drops were Cisco Systems, Dow Chemical, and Walgreens.
Gainers were P&G, Walmart, and AMEX.

Is there a particular reason anyone would think Cisco would take the biggest hit?

Maybe a rebalancing from the previous days or notice that many of its components come from Asia. The ups and down during the past few days are ripe for day traders to bet, go short, take profits and do all the things they can to make money as the markets fall. Specific stock risk can be a terrible thing. Indexes soften the blows.

 

[amadeus]

I would think that Walmart and Apple would be hurting more given that Walmart imports so much from China and Apple too with its sales figures falling there and whatever components problems it has.

Now would be a great time for India or Vietnam to launch a campaign to attract more FDI. Let's move some of that low value-added manufacturing away from our biggest geopolitical rival and put it into our buffer sta... I mean other valuable trading partners!

 

[Zkribbler]

IMHO. the fall is not precisely due the virus. Rather, because of the fear of the virus, factories are closing down in China, S. Korea, Japan, etc. and trade is being strangled.

 

[Birdjaguar]

I wouldn't look a just one day. Look at the YTD numbers. The Dow is down: -9.7% Look at which companies are still up for the year. Mostly tech or tech related.

Changing a company's supply chain is often pretty difficult and slow and right now is not a good time to go meet with potential suppliers to inspect places and have meetings.

 

[FriendlyFire]

I would think that Walmart and Apple would be hurting more given that Walmart imports so much from China and Apple too with its sales figures falling there and whatever components problems it has.
Now would be a great time for India or Vietnam to launch a campaign to attract more FDI. Let's move some of that low value-added manufacturing away from our biggest geopolitical rival and put it into our buffer sta... I mean other valuable trading partners!

I suggest Japan
Hopefully they will get a move on with there 1 Mil robots by the end of 2020. All hail our kawaii Japanese Robot overlords.

 

[amadeus]

I wouldn't look a just one day. Look at the YTD numbers. The Dow is down: -9.7% Look at which companies are still up for the year. Mostly tech or tech related.

Changing a company's supply chain is often pretty difficult and slow and right now is not a good time to go meet with potential suppliers to inspect places and have meetings.

Of course. I didn’t want to imply that I was reading too much from one single day of data. Nor would that uprooting the entire logistical infrastructure for these components manufacturers be easy; just rather what I would like to see in an ideal world that could curb a little bit of the CCP’s influence if they try to monkey with the liberal democratic societies.

I suggest Japan
Hopefully they will get a move on with there 1 Mil robots by the end of 2020. All hail our kawaii Japanese Robot overlords.

Japan has lots of manufacturing, but there’s value lost in spending skilled labor and highly technical robotics on making soap dishes and toaster ovens.

Lots of the manufacturing in this country is, aside from consumer products, high-value precision industrial and technical components.

 

[Farm Boy]

Value.

 

[Timsup2nothin]

Today may be a better day...only down 800 and seems to be stabilizing enough to make it to the end of the day with just a three digit loss.

 

[Birdjaguar]

Gonna hit -1000 today again.