Imagine it is October 2007, a mere 14 months ago. Further imagine that you surveyed every professional money manager, analyst, newsletter writer, and financial pundit and asked them, given the worst-case scenario, how low they could possibly conceive Bank of America and Citigroup might possibly go in price (at the time, the prices of these firms were both about $45 per share).
Even if you surveyed 20,000 of these professional men and women (and those like AJC, who are somewhere in between), how many of them would have guessed anywhere in the vicinity of $2 to $3, which is where they are now? I'd say zero. Even if you made the question really dramatic, I bet the lowest price any of these people might have offered would have been perhaps $25.
We as traders get in the way of our own potential for greatness. We short stocks at $90 and cover them at $80, closing our minds to the possibility that they could go to the single digits. I've done this countless times.
In a raging bull market, people cheat themselves out of the possibilities of how high something can possibly go. I know people who got IPO stock from GOOG that promptly sold it in the double-digits on the IPO day, thinking that the wild enthusiasm for the stock surely marked some kind of high point. Clearly they didn't conjure up the notion that GOOG woud one day soar over $700 per share.
So bears and bulls alike carve out only a fraction of the profits that are possible. Yes, the market has gotten really, really clobbered, but as I look at the stocks I am short, they have incredibly bright (or, should I say, dark) futures ahead. I will continue to ratchet my stops down to protect my profits.
But to my mind, in opposition to just about every other voice on the web, I think the bear party isn't over. I think it's only just beginning.
