INVESTING: Now that market has plunged, it’s time for perspective

There are times when perspective and a little knowledge of history come in handy. Most enormous success stories come down to a ton of grunt work, and a few glorious moments. This is one of those times that, looked at many years from now, could be seen as a building block to something much bigger, or, without the proper tools, another missed opportunity.

I love competing in the stock market because there is more brainpower attempting to succeed on Wall Street than pursuing any other human endeavor. But the person I battle the most is myself. Am I learning from my mistakes, or do I keep doing the same thing over and over, expecting a different result? Am I constantly pushing myself to improve, and am I taking advantage of every possible tool to make sure that I am? To put it simply, it’s good stuff.

By now, you have had several days to absorb and reflect upon the stock market carnage of Feb. 27, which translated into the largest one-day loss in years. There was a near-record spike in volatility. It was a rare day, and that is exactly why we are going to make some money from it.

I keep a stat table in my computer that demonstrates the number of times the market has experienced outsized moves in a particular period. A look at the table to observe what typically happens after volatility spikes, and how long it takes to happen.

I recall one day in May 2001 when the NASDAQ rose nearly 10 percent-it was the greatest up day in percentage terms I had ever witnessed. After that plunge, the NASDAQ fell for another 18 months, shedding more than 50 percent of its value. I added to my short positions that May day, on my way to making more than 20 percent in 2001.

At its lows of Feb. 27, the Dow Jones industrial average was down more than 500 points. On the day of the 1987 crash, that same point move meant more than 22 percent of the total market value was destroyed. On Feb. 27, it accounted for a mere 4 percent.

All of the very high point losses do not even register in the top 20 worst days in market history. Even so, it was large enough to qualify as a rare event. The percentage of stocks above their 10-day moving average was just 7 percent at the close. In at least 90 percent of the times that has occurred, the market was up at least 2 percent within 30 days, and up more than 5 percent within 90 days. In other words, this is a buying opportunity, so don’t jump out that window.