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Perspective: Stock Market has worst week in History – where do we go from here?

By Peter Lynch
Exclusively for InvestorIdeas.com
October 13, 2008

The past week will certainly be remembered in the annals of stock market history. It was a truly crazy market and certainly one of the most volatile in history.

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As I have said many times in the past – “The best way to make money is NOT to lose it”.  Last week was the perfect example: the best place to be was – out of the way!  Always remember: a strong tide raises and lowers ALL boats, without exception.

But one thing that has always amazed me is how history continues to repeat itself.  Take a look at some of the quotes below as an example:

  1. “The U.S. banking system has been stretched very nearly to the limit”
  2. “Now even nations are in danger of default”
  3. “The worldwide threat of financial instability rises”
  4. “The slide is steep, with NO end in sight”
  5. “The U.S. and its allies scramble to head off a global financial disaster”
  6. “Fear of a free fall in the market”
  7. “ Most Americans have lost faith in the stock market”

As you read these quotes you certainly get a feeling of impending doom and a fairly bleak future and I would have to agree, except for one minor point.
Quotes 1 thru 4 were all from Business Week magazine in September, October and December of 1974 and January of 1975 right at the bottom of the 1973-1974 bear market.
Quote 5 was from Newsweek magazine in December 1982 at the very bottom of the bear market of 1980-1982.
Quote 6 is from U.S. New and World Report in August 2002 and Quote 7 is from the Associated Press in October of 2002 immediately AFTER the bottom of the huge bear market of 2000-2002.
If you read those quotes again it is easy to see how they could be from last week……….once again history is repeating itself. But back then, the world was ending and panic reigned supreme, just like today.
But this time we are in the present NOT the past and PANIC is once again, everywhere!  The S&P Index has lost 42% of its value, certainly NOT the start of a bear market, more likely very close to the end of a bear market.
Remember the market has been in decline since it hit its high in October of 2007. The last 9 trading days have seen a 25% decline, unprecedented, except for 1987 and 1929. In BOTH cases the market was UP 15% and 21% respectively in six months.  But my “gut feel” is that this market will move MUCH faster than it has in the 1980’s and 1930’s.  When the market turns around it will turn quickly and climb a massive “wall of worry”, headlined by the word “RECESSION” on most magazine covers. There will be stories of terrible sales upcoming and falling earnings in all the newspapers and blogs.
Honestly, is there anyone who does not think that we are already in a recession? That Christmas this year is going to have terrible numbers? Anyone who has been to the shopping mall recently knows that these are OBVIOUS conclusions to even a casual observation of traffic in the mall.
This stage of the bear market is being run by the psychology of fear and panic. This stage of the market has, historically, ALWAYS been the sign of “capitulation” by investors and a classic selling climax.
Unfortunately, I do not possess an infallible crystal ball and each person must evaluate their personal risk tolerance and act accordingly. However, the weight of the historical evidence points to an historic buying opportunity. While it is true that it is always darkest before the dawn, it takes nerves of steel to act on that situation in the real marketplace.


I believe that the risks of inaction are so great, that governments will finally act in concert to create much needed confidence and thereby reverse this crisis of confidence which is the seed of the current panic.

Mr. Lynch has worked, for 31 years as a Wall Street security analyst, an independent security analyst and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and has from time to time been a financial/technology consultant to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com.

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J. Peter Lynch has worked, for 31 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker to small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977and is regarded as an expert in this area. He is currently a financial and technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.

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