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Wednesday, February 28, 2007

Red Tuesday

Today was a good day to be teaching investments. My student managed investment fund class was a bit shell shocked at losing 3 1/2 % of the fund's value in one day (we meet on a MWF schedule, so there wasn't class on Tuesday). .And 100% of our 20+ positions in the fund ended in the red for the day (hence the title of this post). So, there was a lot of discussion about the various stories explaining the drop (Shanghai, bad economic news, and the ever-popular "Greenspan said we're due for a recession").

The biggest positive of this experience is that it has sharpened their focus on the "downside" of being in the market. If you're going to be in the market, you have to see a major correction at some point, and it's better to see it earlier than later (and it's even better if you can experience it with some else's money). We spent a lot of time discussing some positions we plan on exiting and whether or not to sell now, wait and see, or put in stop losses. Of course, I won't tell you what they decided.

But on the good side, the fund has clawed back almost 8/10 of a percent today. It's still not great, but it is an improvement over yesterday's results.

update: It was interesting teaching CFA last night - I got to talk with a couple of equity traders. One had been at it for about 7 years, and had a lot of relatively young guys in her group (almost all had started post 9-11). She enjoyed the panic they expressed since they'd never experience a correction like this. So it's not just my students.

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