For those who may have missed it, the stock market plummeted from a loss of just over 200 points to nearly 1000 points in intraday trading in the span of about 2 hours.
As someone who witnessed this live action unfold and actively traded during this period, I thought I would share a few observations and thoughts.
1. Despite all the great technologies we have today, we clearly have a ways to go to further ensure the integrity of the markets and to provide a level playing ground for all market participants. As the story continues to unfold on what led to this collapse today besides the macro economic concerns that have been rattling the markets, we've started to hear tidbits about breakdowns in electronic trading and data entry errors made by traders which triggered the rapid collapse in the stocks.
The human trading errors notwithstanding, one thing I experienced first hand today was the uneven playing field that still exists between institutional investors and individuals. Savvy institutional investors like hedge funds have access to sophisticated computerized trading tools that enable them to take advantage of rapid movements in stock prices and to profit quickly from changing market conditions given their strategies. On normal trading days, this may not be a major advantage. But on a day like today, it can make all the difference in the world. As the market was plummeting in double time, I as an individual investor simply could not keep up with the changing prices despite having the right trading strategy in mind. For instance, as P&G dropped more than 25% (just one of several examples) to outrageous levels, I simply couldn't buy the stock fast enough before it recovered to a more rational level.
2. A second observation I would make is the fact that while the intraday lows are now clearly known to be driven by a human/electronic error, the fact that it was believable at the time to so many people (including myself) tells me that we are really not out of the woods yet on the global economic recovery. With soverign debt worries led by Greece (but also other Euro nations), continued lackluster employment here in the US, the prospect of a property bubble in China, and continued threat of a real estate double dip in the US just to name a few top of mind issues, this market clearly still remains a split second away from a massive "flight to quality" stampede as evidenced by the market demand for Gold today.
3. Lastly, as I've remarked often in the past, I think market days like today is what separates the savvy/institutional investor from the everyday Joes. To put it more simply - when the market moves like this, the everyday Joes tend to execute their stop loss orders and run for cover, while the savvy investors are busy accumulating their positions. This is the essence of buying low and selling high - to behave in a contrarian manner when the stampede is going in the other direction. After all, if you liked a stock at $10, you should be loving it at $5 unless there are meaningful fundamental changes that would support changing your strategy.