In a recent news article, CNBC’s Jim Cramer examined two flash crashes and provided guidance on how investors can identify similar market events. He emphasized the importance of not panicking during a decline and instead focusing on understanding the reasons behind it, such as the fundamentals of the economy and how to manage assets. Cramer highlighted the sell-offs in 2010 and 2015, which he attributed to system failures within the market rather than the economy itself. Despite this, investors panicked during both flash crashes and wrongly attributed the sudden declines to global economic factors.
Cramer drew parallels between these flash crashes and the crash of 1987, which saw a significant drop in the Dow within a short period of time. He noted that all these crashes were caused by mechanical failures within the market, rather than economic factors. Reflecting on the flash crashes, Cramer expressed his belief that investors were not prepared for such events, despite the implementation of circuit breakers by the government after the 1987 crash. These circuit breakers were intended to temporarily halt trading and cool market declines, but they failed to work effectively in both instances. Cramer argued that this created a false sense of security for investors, ultimately resulting in the erosion of their investments.
In summary, Cramer emphasized the need for investors to remain calm and analyze the underlying causes of market declines rather than succumbing to panic. He stressed that flash crashes, like the ones in 2010 and 2015, are often caused by market malfunctioning rather than the overall state of the economy. By understanding these market mechanics and not relying solely on circuit breakers for protection, investors can better navigate sudden declines and potentially find attractive buying opportunities.
