My Gaming Plan For Today

The Nikkei down 12.4%, Nasdaq Futures 5%+... What I will do

Hi Friends

At the moment I start writing this, the markets are still closed, but things don't look great today. 

The Japanese stock market index Nikkei is down a whopping 12.4% at the end of the trading session. 

That's the biggest drop since Black Monday in 1987. Wow, wild!

The Nasdaq Futures are down more than 5%. 

Chances are that this will be a volatile, very volatile day. Think: deep in the red.

The Vix index spiked to levels only seen during the pandemic and the Great Financial Crisis.

That looks awful, right? 

The market already started declining in the second part of last week, when the Fed didn't cut interest rates and the jobless claims came in higher than expected. 

Many investors couple this with the fact that Warren Buffett sold half of his gigantic Apple (AAPL) stake. Most people don't even think about the fact that it's still about a third of Berkshire's portfolio. It's the selling that scares them. And the big cash stack Uncle Warren has collected.

(source)

My thoughts on this drop

My thoughts are actually quite simple: I can't do anything about it, so I let it be. When the volatility shoots up like this, many leveraged positions and options are washed out, triggering margin calls that cause more selling. 

What's causing this? Well, explanations abound. 

• The higher unemployment number is a precursor of the looming recession

• The Central Bank of Japan raising rates by 0.25% at the same time that it's almost certain the Fed will cut makes the yen go up and the economy drop. The fear is big funds would not move money out of Japan to the US anymore. I doubt this, to be honest.

• The AI bubble is bursting.

• A big bankruptcy is coming. This is, for example, what Gautam Baid wrote on X. 

Gautam Baid is the author of The Joys Of Compounding, a fantastic book about the stock market, investing, reading and learning. But I'm not sure I agree with his first line here. It's possible, but it's a wild guess.

I do agree with his second line, though. If you look at the past, you see that the stock market always precedes important changes, like recessions, with 6 to 9 months. The pandemic was the exception, of course. 

But what the market sees in the future is uncertain. And the market itself is sometimes like the permabears, who have predicted 15 of the last 2 recessions. In other words, this could be a short shock to the system and it could be gone. Or, we don't know, it's the shock that could cause something to break. It's totally unclear. Be aware that people who cry 'recession' don't know more than you do. They have their opinion and it could definitely be true we are heading to a recession, but nobody knows. 

Up to now, the earnings season looks pretty strong to me, just like the guidance companies communicated. Could it be that this is peak earnings? Yes, but it doesn't feel like that right now. But, as said, the market often anticipates.

What I Will Do

What I will do now is what I always do: I will continue to invest. Today looks like a good day to deploy the money that I had set aside for the PM Future Fund, as I already announced to the paid members of Potential Multibaggers yesterday. But if there's a substantial drop, I could invest in different stocks than I anticipated. I don't know, as the market is still not open at this moment and pre-market prices don't always say that much. 

This is the system that I apply, which I dubbed 'dollar-cost averaging on steroids.' 

This system served me excellently in 2022. 

Right now, I'm not adding extra money yet. There's always a lot more room for downside and I want to save some dry powder. After all, up to now, the stock market is not down 10% yet. 

If you approach investing periodically, it removes the inherent doubt. What I mean is this: suppose the market drops a lot but recovers substantially tomorrow. You may have FOMO (fear of missing out) tomorrow. If you invest a lot today and it keeps dropping, you may facepalm yourself for being so stupid. In investing, you never know the outcome at the moment itself, like today, so be aware of that.

Buckle up, Friends!

In the meantime, keep growing!