stay calm and go bargain hunting

The sky has been falling an awful lot lately. Every couple of days, something spooks investors into short-lived selloffs. First, everybody freaked out about Ebola. This week, the shooting in Canada’s capital tanked the Dow by two percent.

I can’t count how many temporary, news-driven declines like these I’ve lived through in my career. But I don’t know if I’ve ever witnessed such widespread “Headline Risk.” There are so many Chicken Littles out there with fingers poised nervously over panic buttons, I’m starting to think a better name for the phenomenon might be “Headline Opportunity.”

I rarely do anything when the markets veer over one percent in either direction in a single session. Most of the time, I wait to see if the movement carries over to the next day or the next week. But if I was inclined to act, I’d be a buyer during these downswings.

Nervousness about a terrible disease like Ebola and a probable terrorist attack is understandable. But if you turn off cable news and take a deep breath or two, it’s pretty easy to see that neither event is likely to impact corporate earnings or economic growth in a big way.

In the case of Ebola, for instance, Nigeria just eradicated the disease within its borders. It did so by following some very basic and time-tested protocols. While I’m definitely not a fan of our wasteful, for-profit healthcare system here in the U.S., I am confident that it is more capable than Nigeria’s system, and will do an even better job of responding to the few isolated domestic cases we’ve seen.

As for the shooting in Ottawa, it highlights something interesting and important: the real threat to our national security is not along the border everybody is always shouting about “securing,” the one with Mexico. The Canadian border is much more vulnerable. Remember the Islamic extremist that got caught with a carful of explosives bound for Los Angeles International Airport? He was busted on a ferry from British Columbia, and it was pretty much dumb luck that led to his arrest.

If that guy had successfully detonated a bomb at LAX, investors would have had good reason to sell. Those are the kinds of 9-11 scale events that lead to sustained market downturns. But a single whack job with a rifle? I don’t think so.

The real irony of headline-driven dips like we’ve seen recently is that many stock market crashes have little or no clear correlation to world events. As I write about in my book–available for pre-order now!–I was hired to run a small, $60 million mutual fund in late 1987. About a month after I started that job, I came into work on what seemed like a normal Monday morning and watched in¬†horror as every single stock in my fund got absolutely demolished. And you know what? Nothing in the newspapers that morning or in the mornings leading up to Black Monday gave any indication it was coming. It was like a stock market earthquake on a previously undiscovered fault line. Sure, some observers had felt tremors beforehand and had predicted that the market was due for a big correction. But people are always saying things like that, just like there are always plenty of people prepared to turn every scary story into a harbinger of doom.


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