On March 11, an earthquake that measured 9.0 on the Richter Scale rocked Japan. A massive tsunami ensued after that. A nuclear plant was also damaged, spewing radioactive materials into the atmosphere. This has caused massive fear in the stock market. The STI dropped from 3075 points on 10th March to 2935 points on 18th March. That was a 4.6% drop in the span of 6 market days.
On 15th March alone, the STI dropped 2.8% with high volume! Investors were in apprehension over the various news that were unfolding in Japan. However, yesterday, the Sunday Times front page screamed “Crisis shows signs of stabilising”. Today, CNBC reported that “some progress is seen at Japan reactors; US sees turning point”. I can only guess that the stock market will start picking up once again when the positive news start rolling in bit by bit.
So it can be seen that the market tanks when there is fear and anxiety. It will rise when there is positive news. However, amid all the fear and tension, we should always remember that the stock market is made up of pieces of businesses. The prices of shares drop due to market sentiment and not due to business failures per se.
Warren Buffett once said, “Be greedy when others are fearful and be fearful when others are greedy”. When investors are showing fear, it’s a good opportunity to buy shares at depressed prices as the market will only pick up, slowly but surely.