Seemingly everyone wants to invest like Warren Buffett, and the NYSE’s sudden shutdown last Wednesday gave them a chance to live that life.
Buffett has long suggested that investors should have a portfolio where they would feel comfortable if the market shut down for five years.
Anyone left squirming by a New York Stock Exchange trading halt that lasted about 31/2 hours is either a trader or has the wrong portfolio.
The New York Stock Exchange “temporarily suspended trading in all symbols,” which captured imaginations and had investors worried about everything from severe fallout from the recent China meltdown to the potential for some sort of hacker attack or terrorist situation.
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Within an hour, sources were suggesting the issue had more to do with computer glitches than some major event, but it had the talking heads babbling. The inauspicious timing, given the market’s recent volatility caused by China and Greece, was enough to get nervous investors to start popping antacids.
The moral for average investors is simple: If the event has faded to forgettable in your mind already, that’s a good sign. If not, review your portfolio and strategy before some much more significant event sends you scurrying for cover.
The trading outage was unusual, but not unique.
In August 2013, the Nasdaq had a surprise afternoon shutdown that lasted for about three hours. That exchange in 1987 and 1994 had two separate occasions when it was shuttered after adventurous squirrels chewed power lines, flaming out trading until the power grid could be restarted.
The most recent NYSE outage in memory was in June of 2009, when a computer malfunction stopped trading for about 30 minutes. There are countless other examples, mostly forgotten in days.
Still, the concern when these problems arise is that they won’t be an event that’s easily dismissed, but instead will be like the 2010 flash crash case, where the markets collapsed and rebounded in a span of about a half hour.
No one felt that kind of panic Wednesday, as the markets didn’t show particularly wild action before the exchange went dark.
That’s why there was no need to overplay the case.
It wasn’t anywhere close to a market-meltdown event.
The Nasdaq was still open, there was still a lot of market activity and trading volumes were mostly normal, even if trades were being made through different channels; the lack of information is frustrating, but it also kept most people from overreacting.
Traders and market sharpies find that any uncertainty is their worst nightmare. They’re scared of what a shutdown means, worry about how the re-opening will play out and will always chatter about how hairy this would be if it happened during a heavy-volume or big-news day.
By comparison, average investors — the ones who found out about the NYSE shutdown well after it had begun and wondered what was going on — typically come through these events completely unscathed. They’re not watching the market moment-by-moment, so they’re not trading into right-now news.
Oh, they’ll hear that an event like this can affect their exchange-traded funds — funds that continued trading during the shutdown — but they won’t notice any long-lasting effect, and the concerns will fade as quickly as the memory of the event.
Until there’s another incident like this.
Events like this are predictably unpredictable. We know they are going to happen; we just don’t know when.
They mostly get blamed on glitches, unusual trading activities or market anomalies, but they all look suspiciously like the kind of thing that can trigger a market quake on the magnitude of the financial crisis of 2008, and they are stunningly hard to accept sitting down.
While the talking heads on the financial channels were saying things like “investors have lived through this kind of stuff before,” and that people “accept that these things happen,” they were ignoring the fact that the United States is not an emerging or frontier market. Orderly markets are imperative here.
A market shutting down for some glitch or some gamesmanship or anything else that puts the delicate balance in question is a real problem.
It makes investors wonder: “Is the market broken? If I can’t tell, should I trust it?”
Even for cynics who think the market is rigged, Wednesday’s shutdown was not a big “trust event.” In fact, there’s a good chance that if the NYSE shutdown had occurred without news networks in the building, most investors wouldn’t have discovered the problem for days, if ever.
Average investors finding themselves scared by events that suddenly make them fixate on the market news of the day should use an event like the trading halt to consider whether they need to change strategies.
Think of this as a test, the investment equivalent of a three-hour beep for the Emergency Broadcast System. If it had been a real emergency, you would have been able to tell the difference.
Any long-term investor should embrace Buffett’s concept of building a portfolio they’d want to have if the market shut down for years; if you got nauseous with an afternoon of halted trading on the NYSE, it’s only a matter of time before one of these market tests tweaks your knee-jerk reaction and undermines your strategy.
Chuck Jaffe is senior columnist for MarketWatch and host of “MoneyLife with Chuck Jaffe.” You can reach him at firstname.lastname@example.org and tune in at moneylifeshow.com.