Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: TobagoJack who wrote (2614)	3/27/2001 9:32:47 AM
From: LTK007	Read Replies (1) of 74559

bit of history from today's Fleckenstein column <<Fat Chance Speaking of bottoms, a regular reader decided to do a little research on that subject, specifically in the area of capitulation. He went back to the 1929 to 1932 market collapse to see how well people would have done had they bought "capitulation." For the purpose of this exercise, he defined the term as a one-day 10% decline in the Dow. His research turned up 26 such instances of "capitulation." If you bought the tenth one, you lost 73% of your money by the bottom. If you bought the first one, you lost 87% of your money by the time the bottom was hit. So the lesson to be learned here is that trying to catch a bottom can be tremendously harmful to one's financial health. People need to remember that it's an extremely low-probability event: Like the top, the bottom can only happen once. Having perspective is a prerequisite for even thinking about these things. Of course, as a prerequisite to adopting this perspective, people have to turn a deaf ear to the talking heads on bubblevision who willfully focus on spin and market action in lieu of focusing on the facts.>> max

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