Market Action Feels Like 2001

Midway through the 8th day trading day of October, we have our 7th down day of the quarter. This market feels a lot like the painful one we experienced in late 2001. The culmination of the Nasdaq bubble bursting, the outbreak of SARS, and the 9/11 terrorist attacks led to an environment that felt as though it would go down every day and never end.

Today we have a similar scenario. Stock prices are indicating that 1) gasoline prices will remain at $3 per gallon even as refineries come back online in the coming weeks and months, 2) natural gas prices will remain high even after the winter season passes, 3) consumer spending will be poor during the holiday season and every season thereafter, and 4) the Fed will continue to raise interest rates forever. Add to it that we are in the historically poor performing month of October, and it feels like no end is in sight.

Like in 2001, today I wish I was a trader in these environments, not a long-term investor. As a trader you can just go with the trend and short this market. As a long-term value investor you need to buy stocks as they fall, knowing full well they will most likely fall further before they rebound.

However, I know that as a short-term trader I would not have been able to profit handsomely from some very contrarian bets. Shares of Royal Caribbean (RCL) fell from $30 to $8 in 2001 after leisure travel was halted in the United States. Four years later the stock closed 2004 at $54 per share, for a gain of 575 percent.

In the end, sacrificing the short-term for the good of the long-term can yield outstanding rewards. The key is stick to your convictions when it hurts the most. “No pain, no gain” rings true in the stock market as well.