SOURCE: John Thomas Financial

John Thomas Financial

March 18, 2011 10:30 ET

John Thomas Financial Chief Market Analyst Shares Insights on "Buying Panic"

NEW YORK, NY--(Marketwire - March 18, 2011) - According to Mike Norman, Chief Economist, John Thomas Financial:

Markets continue to trade down on the news out of Japan. Fear dominates and there is little appetite for risk. Meanwhile, the risk continues to rise. A major earthquake in the world's third largest economy is bad enough, but when it's followed by a massive tsunami and nuclear reactors literally blowing up, that's numbing.

The Japanese stock market lost 17 percent in two days. That's $700 billion wiped out in a matter of hours. On top of that the cost of rebuilding is starting to look incalculable and the growing radiation concern means that we don't even know when the work can begin.

The ripples are being felt everywhere. Over the last several days investors around the world have suffered losses in the trillions of dollars and more of the same seems likely.

So what should an investor do?

History shows that the best times to buy are during market downturns and panics. The last thing investors should do now is head for the hills. Loading up in times of steep market pullbacks is the difference between average returns and outstanding returns; as in the kind that make you rich.

Sure it's hard to do. It goes against human nature, just as stepping out of a plane at five thousand feet goes against human nature. (With a parachute, of course!) But those who muster the courage will almost certainly find themselves handsomely rewarded.

Like every other difficult situation in life, it pays to get some perspective. Perspective helps to remove the emotion of the moment, which can often paralyze. So here's some perspective. Below are a list of some of the worst stock market crashes and downturns in recent history.

On October 19, 1987 the Dow dropped 22.6% in a single day. That was the largest one day percentage decline in stock market history.

The tech bubble burst on January 15, 2000. Fourteen months later the Nasdaq was down by 70%. Then we got hit with 9/11 and the market fell another 30% before hitting bottom.

When the U.S. was drawn into WWI the stock market went down 40% in the year that followed.

On December 7, 1941 the nation was attacked at Pearl Harbor and we officially entered WWII. Over the course of the next year the stock market had shed 41%.

In 1973 we had the Watergate scandal and an oil embargo. Twelve months later the market was down 45% and we were mired in a deep recession.

Everybody knows about the Crash of 1929. It was the precursor to the Great Depression. Stocks fell about 50% in less than 3 months.

The Panic of 1907 was precipitated by a credit crunch as severe as the one we just went through and the market lost 49% in a two year period. It was before the U.S. had a central bank and the country's financial system basically had to be rescued by a group led by financier J.P. Morgan.

The "granddaddy" of all downturns was the 1930-32 collapse that began the Great Depression. The market lost 89% during that period and a vast amount of the national wealth was completely wiped out.

There were many more of these types of setbacks in the course of our history. Some were less memorable, perhaps, but no less scary. Yet all of these events have one thing in common: the market always recovered and rose to new heights and the economy expanded to levels of output never seen before both in nominal and real terms.*

History and statistics provide a very important lesson, perhaps the most important thing any investor should ever take to heart. If you buy when the market is down and invest in quality, dividend-paying companies you will make enormous amounts of money over time. That's the only real way to amass great wealth in the stock market. In other words, if there was ever a road to riches, this is it.

For more insights from Mike Norman and John Thomas Financial, visit the JTF Blog at www.jtfblog.com.

*Nasdaq has not yet recovered its 2000 high, but was more than halfway there before this recent setback.

About John Thomas Financial
John Thomas Financial, member of the FINRA and SIPC, is an independent broker-dealer and investment banking firm headquartered in New York City's Wall Street district. Emphasizing a client-centric approach to managing all aspects of its business, the firm offers a full complement of retail brokerage and corporate advisory services tailored to the unique needs of its clients. For more information on the firm, please visit www.johnthomasbd.com.

IMPORTANT DISCLOSURES

THE INFORMATION PROVIDED IN THIS PUBLICATION IS FOR INFORMATIONAL PURPOSES ONLY. INVESTORS SHOULD CONSIDER THIS REPORT AS ONLY A SINGLE FACTOR IN MAKING THEIR INVESTMENT DECISION. THIS INFORMATIONAL REPORT IS NOT AN OFFER TO SELL OR A SOLICITATION TO BUY ANY SECURITY. THIS REPORT HAS BEEN PREPARED AS A MATTER OF GENERAL INFORMATION. IT IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ANY COMPANY, AND IS NOT AN OFFER TO BUY OR SELL ANY SECURITY. ALL FACTS AND STATISTICS ARE FROM SOURCES BELIEVED TO BE RELIABLE, BUT ARE NOT GUARANTEED AS TO ACCURACY. BEFORE ACTING ON THE MATERIALS HEREIN YOU SHOULD CONSIDER WHETHER IT IS SUITABLE FOR YOU PARTICULAR CIRCUMSTANCES AND, IF NECESSARY SEEK PROFESSIONAL ADVICE INVESTMENTS INVOLVE RISK AND AN INVESTOR MAY INCUR LOSSES. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE. TRADING AND INVESTMENT DECISIONS ARE THE SOLE RESPONSIBILITY OF THE READER.

Contact Information

  • Contact:
    Sarah Vaynerman
    New Horizons
    212-299-7888
    Email Contact