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October 09, 2008

Fear And The Stock Market Economy

This thing is far from over. There will be rallies — who knows, maybe even tomorrow — and some of them will be quite explosive because of short-sellers scrambling to cover their positions, but from today's action it looks like real fear has set in. We may have reached the recognition point, where people have realized they're up on a high wire without a net.

Warren Buffett once pointed out that the markets during a panic are like a crowded theatre during a fire — but with one crucial difference. In the stock market, you can't leave your seat to run for the exit until you find some other guy who's willing to buy it from you. When the theatre's filling up with smoke that's not easy, not without practically giving it away.

Like the old Wall Street adage says, bear markets move a lot faster than bull markets because panic is a lot stronger emotion than hope.

All of this is just my opinion. Please don't take it as investment advice.

Posted by Jonathan at October 9, 2008 03:40 PM  del.icio.us digg NewsVine Reddit YahooMyWeb