What happened with Monday’s market meltdown?

Over the last week or so, I’ve received a few calls from friends who watch the market – most of them excited, believe it or not. It’s been something of a bloodbath, as giants like Apple and Microsoft led a downward tumble in all three of the biggest indices:

declines in tech giants can pull down the NASDAQ, and sometimes the whole market with it

The tech-focused Nasdaq was the worst of it. And since tech companies command the top spots in the overall market, they’ve dragged most everyone else down with them. 

But things got downright bizarre over the past couple of days in particular:

major intra-day market corrections on January 24, 2022

Monday alone went something like this:

  • 9:30am – Markets start the day -1.5% in the red (not a good start)
  • 10:30am – NASDAQ now down -2.3% (yowza!)
  • 12:00pm – NASDAQ down a massive -4.89% (HOLY CRAP!!!!)
  • 4:00pm – Markets finish the day… positive (what in the world?)

For context, there have been maybe a half-dozen other intra-day bounces like this within the last century… Yes, century.

Possible explanations abound – recent tensions with Russia, expected rate hikes from the Fed, the simple rhythm of market corrections, etc. – all of which are probably a little bit true. Some see it as a bearish sign, others as bullish

In the midst of all this, allow me to be just a bit smarmy and remind you of what I said in my last email: market lurches are normal and nothing to panic over in themselves. So long as your portfolio risk matches your investment time horizon and general propensity for risk, that is.

It makes sense to wonder if Monday’s whipsaw movements fit in the category of “normal” volatility (statistically speaking, it was unusual). But it is critical to resist the urge to get swept up in speculation, and instead focused on these 3 principles:

  1. Markets will drop
  2. Markets will recover
  3. You will not predict the bottom. I promise.

So what to do with this information? I’d suggest the following procedure:

  1. Identify an investment opportunity
  2. Buy in small chunks as the price continues to fall
  3. Keep buying until you’ve acquired your full-size target position
  4. Maintain your conviction
  5. Profit

Moral of the story: trying to time the markets is a fool’s errand, and while you can’t completely shield yourself from bad luck, it usually pays to be patient. Even (or especially) when things look crazy. 

— Graham