Flipping Rich

The Dow dropped over 400 yesterday responding to the biggest single-day decline of the decade in the Shanghai Composite Index on concerns of more economic tightening measures as China’s parliament prepares for its annual session next week.  It’s about time.  Until now, there’s no definitions of how accurate reportings are.  As one mutual portfolio manager would say “I know what China’s index will report the day after Bloomberg’s reports are released”.  I can see those Chinese officials sitting in front of Bloomberg with Camels at hand anxiously waiting for numbers to be released.  The minute these numbers are out, “ok, that number sounds good”.  And it’s done.
 
Market sentiment in China firmed after the Ministry of Finance dispelled speculation it was about to levy a 20% capital-gains tax on stock investments. Rumors of a new profits tax had helped send the market into Tuesday’s tailspin.
 
Concerns over excess valuations were also cited. The Shanghai benchmark had tripled in the past 20 months, and was up 13.6% in the year to date before Tuesday’s decline.
Not only the U.S. markets but also global markets responded to the huge drop in China.  The bond markets benefited from Tuesday’s lows.  Today, most of the global markets including the DOW have rebound as investors are comforted by Bernarke’s comment that there’s no fundamental concerns in the U.S. economy.  http://www.marketwatch.com/News/Story/Story.aspx?column=Market+Snapshot
 
Folks, the lesson here is simple — stay invested, stay diversified.  Instead of getting nervous when the market drops, you should consider this a buying opportunity — or I’d call it “sale”.   If you’ve missed this one day “sale”, don’t worry.  You’ll have other opportunites.  If you look at the history of market performance, it’s not a straight upward trending line, it’s more like stair climbing.  Although the long term fundamental still looks good but we have not seen a 10% correction in the U.S. market in about 5 years.  It’ll be a bumpy year.