We've learned some valuable lessons in the last few days -- or some would say re-learned them-- and it is worth recapping what we have seen.
First, let's accept the fact that neither the machines nor the people can be trusted to get the market to work right when there are huge influxes of capital in either direction.
There's been so many computers layered on computers, while at the same time the big firms are endlessly cutting back people and capacity. The regulators have pretty much given up policing the shenanigans and there are never any real investigations or meaningful sanctions.
So own it. Don't trust the market. It ain't worth your trust. But companies are worth your trust. The only way to make sure that you are protected is to protect yourself! Use limit orders. Someone sold CVS (CVS), which is held in the Trifecta Stocks portfolio, at $82 yesterday. It traded to $102 shortly after. General Electric (GE), a holding of the Dividend Stock Advisor portfolio, did trade below $20 yesterday. Celgene (CELG) was down some 30 points.
Now, some will say these trades got cancelled. But believe me, if you were the one who sold 200 shares at the market at that opening you got hung. We know it. And you have no claim to restitution, because this is a caveat emptor market. A limit order would have gotten you a great price¿YOUR PRICE. And think about it. Had you used a limit order, you could have bought Action Alerts PLUS portfolio holding Apple (AAPL) at $95 easily with the knowledge, which I shared on air, that China is strong and that business has accelerated for the company. That's opportunity lost. I still can't believe people were selling that stock in the $90s knowing that China's strong even as the stock has fallen from $133.
Second, you need a second brokerage account for emergency sakes. There were lots of systems that went down at brokerage houses because they, too, can't handle the capacity on big days. Don't grumble; it's the way it is. I am tired of people saying the system doesn't work. It obviously doesn't. So either leave the asset class or get some back-up protection. You can't wait for the government, because the government is not focused on you or your account.
The ETFs are in charge, and they can play havoc on stocks that you can use to your advantage. The machines haven't figured out how to interact with the ETFs, which causes tremendous dislocation that you must always be aware of. Keep a shopping list of stocks ready for these kinds of machine-led dislocations. You simply never know when a big buy or sell order from a particular ETF will overwhelm the system. But it is a regular occurrence, particularly at the open and near the close.
Corporate buybacks mean nothing on days like we have been having. Most of the CEOs don't know jack about stocks and have either accelerated buybacks that do nothing to stabilize their stock or take advantage of prices -- they are just done to shrink share count to boost earnings -- or they don't know to be there when the great opportunities are to be had.
I am not saying that CEOs should spend all of their time looking at the stock. I am saying that common sense dictates that when your stock is down six, eight, 10 points and nothing is happening, you ought to direct whoever the heck is in charge of your buyback to get aggressive. That's a smart use of your capital. Odd only that Tim Cook seems to get this, and Bob Iger, too.
Finally, stop with the fear. If you were very fearful yesterday and you can't think longer term and you get all hinky -- yeah, hinky -- when you see permabears come on air who have been wrong for decades, then do something important for me: GET THE HECK OUT OF HERE. This is, in the end, a league of stocks for people who have belief and hope in the progress of companies and their shares. Maybe it's not your league. Maybe you shouldn't try it out.
There is no sin to that. But I think that most people would be better served buying index funds in stages over a year's time and accelerating that buying on days like we have had. That's your back-up plan. If you can't do that, either, CDs are ready for you with open arms. Be my unequivocal guest.