Jim Cramer, a CNBC commentator, has analyzed two recent flash crashes and provided advice to investors on how to identify similar market events. Cramer emphasized the importance of not panicking during market declines, but instead understanding the reasons behind them and how to manage assets accordingly. He stated that if investors can determine that a sell-off is due to market mechanics breaking down, it may present an exceptional buying opportunity.
Cramer discussed two previous flash crashes in 2010 and 2015, both of which he believes were caused by system failures rather than economic factors. However, during these market downturns, investors panicked and attributed the sudden declines to global economic issues and other factors. In 2010, Cramer suspected a “phony sell-off” as it did not align with the economic landscape, later discovering that a large erroneous sell order had caused panic. In 2015, unusual declines in recession-resistant stocks like biotech companies led Cramer to suspect market mechanics failure.
Drawing a parallel, Cramer compared these flash crashes to the market decline of 1987. He stated that all three crashes were caused by mechanical failures in the market, rather than fundamental economic issues. Cramer also criticized the circuit breakers implemented after the 1987 crash, which were aimed at temporarily halting trading during substantial declines. He argued that these circuit breakers gave a false sense of security that still persists today, as they failed to prevent the destruction of investors’ assets on multiple occasions.
In summary, Cramer advises investors to remain composed during market declines and analyze the underlying causes before making any rash decisions. By identifying sell-offs caused by market mechanics breakdowns, investors may find lucrative buying opportunities. He also warns against relying solely on circuit breakers as a safeguard, as they have proven ineffective in preventing significant losses.