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Capitulation Chaos:

Capitulation

Investopedia defines capitulation as “associated with giving up any previous gains in stock price as investors sell equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

If you’ve been watching the markets the past few days and are working hard to determine if this is the bottom…I’m afraid that I can’t help you either.

What I do know is that the proverbial toilet is flushing and its not a very nice ride for investors with capital in the markets. Greed has led to fear and fear spooks the market into chaos. But whenever chaos exists in the market you can be sure that I’ll find value.

I enjoy volatility not because it wrecks havoc with my portfolio, but because it creates opportunities for mispriced equities. I have no doubt that an individual watching their retirement savings dwindling before their eyes is a hard sight to witness, but as a long-term investor I look forward to these opportunities. I don’t advocate to investors that they run out and buy anything that looks good, has a yield or is trading less than its intrinsic value. What I do encourage is for investors to be objective in their analysis, look to quality companies with strong fundamentals and do their homework on a stock they want to buy.

Over the long-term I have confidence that my equity positions will be worth substantially more tomorrow than they are today. Don’t buy all at once in a mad rush to take advantage of deals, but participate in the market in measured steps. When capitulation occurs the market can move suddenly in any direction and that includes upwards. While it might be difficult to stomach over the short-term, for a long-term investor these are the times when you develop patience and want to practice it.

Whether you’re buying your first position in a stock or mutual fund or dollar cost averaging into a position: stick to your plan, review it and when losses occur remind yourself that these movements are part of a healthy stock market. No stock can grow to the sky against gravity and you want to invest in companies with strong roots just like a tree.

When the wind blows, the river rises or the ground starts to shake what goes on above the surface can appear bleak. Yet over time the stocks with the strongest foundations will continue to be strong because they took the time to build strong roots.

When these stocks are cheap you want to take advantage even when the market tells you to be uncertain. We may have a ways to fall still or encounter further economic uncertainties in the next few months. Buy you can’t replace quality very easily and that is where I believe the long-term investor should be concentrating.

A peer of mine has often said that, “The best time to plant an Oak tree was twenty five years ago. The second best time is now.” I’d urge young investors to consider finding an acorn in this current market because the rewards years from now will be well worth the effort.

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{ 2 comments… add one }
  • MG (moneygardener) September 17, 2008, 6:05 pm

    Thanks for the link buddy!

    The young should hope for declines like these…

  • Nurse B, 911 September 17, 2008, 7:07 pm

    No problem MG,

    I’ve liked that quote for some time and felt that it fit well with the theme of the post. Unfortunately I think a lot of people are completely scared out of this market, but I think now is the time when patience, discipline and specific objectives serve you best as an investor

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