Be Ready For Monday Volatility and Onwards

by: Larry MacDonald

Here it is late October, the time of the year known for having one of the highest correlations with sharp downturns in the stock market. And last Friday saw a substantial sell-off (for a variety of reasons including rising oil prices, lowering of earnings expectations, and a resurfacing of credit crunch fears). If the “weekend effect” kicks in, investors stewing in the negatives over the weekend could be in jettisoning mood today. The day could potentially be on the gut-wrenching side.

But instead of yielding to the natural extinct to cut bait and run, do what Warren Buffett would do. During one of the sharpest market corrections ever, during the 1973-74 period, he is reported to have said he felt like he was shopping in a store where all the prices had been drastically slashed. While everyone else was feeling fear and loathing, he was feeling excited and happy going up and down the aisles, snatching up bargains out of the discount bins.

Of course, today could follow the pattern of recent years. Investors sitting on the sidelines waiting for a dip will jump in and keep the market from going down much, if at all. But it doesn’t hurt to get prepared for the possibility of a collapse, and to dust off one’s list of good companies to buy in the event they do go on sale enough. Exchange traded fund (ETF) investors can dust off their list of good sectors to buy.