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Stocks Plunge: Why It's Too Late to Sell

Stock markets around the world are reeling and gold has topped $1,700 an ounce. Blame the crisis in the euro zone, S&P's downgrade of U.S. debt or an economy that may be on the precipice of another recession.

Just please don't panic.

It sounds like a cliche, but it's true. Besides, as Jeffrey Saut, chief investment strategist at investment bank Raymond James, told clients Monday, it's far too late to panic, anyway.

"The time to panic, and raise cash, was months ago," writes Saut. "Now it is time to selectively redeploy that cash into select equities."

Advising folks to "buy the dip" is another saying that sounds like a cliche, but it's also true. See my colleague Allan Roth's recent argument for buying stocks now.

That's because as tough as it is to gut out panic selling, historically the market has rebounded from nasty routs fairly well.

As we noted last week, based on data going back to 1962, the S&P 500 has about a 60 percent chance of being higher rather than lower in the short- and medium-term, according to Tobias Levkovich, chief U.S. equity strategist at Citigroup (C).

Mike Ryan, chief investment strategist at UBS Wealth Management, made much the same point Monday, telling clients, "historically sell-offs of this magnitude have represented good buying opportunities."

Although the market's plunge may evoke the trauma of three years ago, the recent drop is much more mild than what transpired in the darkest days of 2008, Ryan notes.

Yes, the S&P 500 is suffering one of its worst performances in decades, logging a decline of 7.2 percent last week. But that's nowhere near the worst of 2008, when the S&P 500 lost more than 18 percent in a single week.

To put the market decline in perspective, see the chart of the 15 steepest weekly sell-offs of the last half century, courtesy of UBS and Bloomberg data, below:


More important is what historically follows bouts of panic selling once the terror subsides, Ryan says. Going back to 1960, the S&P 500 has produced strong gains three, six and 12 months after bloodbaths like the one we're in now, Ryan notes.

Check out the post-panic returns, ranging from 6 percent to 17 percent, in UBS's chart below:


Lest we forget, investors who sold into the market collapse of 2008 and 2009 are kicking themselves now. True, it might still be too soon to buy -- but it's almost certainly too late to sell.


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