Did the Market Crash on Friday?
First, let me make it very clear. The market did not crash on Friday. Pop Culture Finance and the media (namely CNBC) are proclaiming that the market crashed. They referred to the decline as Black Friday. That is the most absurd and irresponsible reporting that could be put in print. Furthermore, they are claiming this equally absurd statement:
“Worldwide markets hemorrhaged more than $2 trillion in paper wealth on Friday, according to data from S&P Global, the worst on record. For context, that figure eclipsed the whipsaw trading sessions of the 2008 financial crisis, according to S&P analyst Howard Silverblatt.
The prior one day sell-off record was $1.9 trillion back in September of 2008, Silverblatt noted. According to S&P’s Broad Market Index, combined market capitalization is currently worth nearly $42 trillion.”
Let me explain the math. They claim today’s market capitalization is currently worth 42 trillion. I am not sure what the market capitalization was in 2008. I assure you it was a lot less. So yes, today we should see a larger loss because the market is bigger today. However, you have to look at the percentage loss and that number I am sure is not even close. We are talking a loss less than 3.5% on the day. That is hardly Black Friday. Give me a 10% to 20% daily loss and I will show you Black Friday.
Another example would be comparing losses today to the great crash of 1929. Losses in pure dollar terms would be much greater than in 1929 because the market is much bigger than the one in 1929.
Now Pop Culture Finance is telling you that you are crazy to sell your investments and get out of the market because of BREXIT. They once again are speaking in absolute truths (statements believed to always be true). They will tell you that you never sell out of the market because of a crisis. They reference 2008 and the financial crisis and it was a mistake to sell out of the market.
Is it that easy? No, not quite. Granted, we haven’t seen enough yet to determine whether or not investors should reduce risk in your investments.
On the other hand, to just stay invested when risk has greatly increased the chances of a bear market makes no sense.
It may very well be that this market becomes too out of balance where the risk doesn’t equal the reward. We are not there yet. However, we are getting close. Does it make sense to stay in a market if it is about to lose 50%? Stay in touch with this blog – I will keep you posted.
Bob Brooks is the host of the Prudent Money Radio Show and the president of Prudent Money Financial Services. Through his firm, he invests and manages investments for his clientele. To contact Bob, you can email Judy Parrish to set a time –Judy@prudentmoney.com