On investing and the markets

On Thursday May 6, 2010, at 2:45 PM, the Dow Jones Averages crashed.  In the space of a few moments the Dow fell 650 points.  There was no explanation at the time and apparently not one yet. Six minutes later the market recovered.  We have had many market crashes before, but none of this velocity and none of this duration.

The crash came with the backdrop of a credit crisis in Greece.  The markets were already nervous.   And then the market began to fall without resistance, in huge numbers. In later analysis, traders on the floor said that a huge $12 billion sell order in Proctor and Gamble, one of the most stable names in the market, hit the market and overwhelmed it. Then other sell orders poured in and there were no bids. Sell orders came from every direction. The market was in freefall, and there seemed no explanation. Procter fell by over 40%, by itself at one point, accounting for 150 points of the Dow fall. For a full two minutes not a single share of P&G traded on the stock exchange.

At that moment CNBC flashed a chart of Proctor on the screen, showing it was down 40%, the light bulb went off.  This could not be true!  Indeed it was not true. Jim Cramer who was being interviewed at the time correctly said, something is wrong, the system has broken down.  Buy now.  It was obvious that something was broken, but no one knew what.

In the after market analysis there were rumors of a trade error coming from a big trading house, but no one could confirm it.  Further there seemed to have been a great deal of trading […]