With the stock markets reeling from the election and the fallout from the debt ceiling deal, many are starting to realize that there is little they can do to keep the bubble from bursting, says Jim Rogers, chief investment officer at the investment firm Fidelity Investments.
“I think that it’s going to be a lot of people who are taking advantage of the fact that the markets are so far out of control, and that’s going, ‘OK, I can just keep pushing the bubble and hoping that it doesn’t burst,'” he says.
But Rogers also warns that even a small move in the stock index could have a huge impact on your portfolio.
The Dow Jones Industrial Average (DJIA) fell about 25% on Tuesday, its worst day since late March.
That means it’s down about half of a percentage point from its all-time high in June 2009, when the market hit a record high of 5,086.4.
The S&P 500 index of small-cap stocks fell 3.6%.
But that was only a partial reversal after the index climbed 3.7% on Monday.
A drop of this magnitude could have significant impact on the portfolios of anyone who has invested in stocks over the last year, Rogers says.
“It would be quite a shock to many people who have not taken a position in stocks,” he says, adding that a big move in one stock could have even more effect than a big drop in another.
If you invest in stocks, you should consider it a big risk, he says — but the more you take risks, the safer you can be.
The bottom line?
Even a small drop in the Dow is a big deal.
“We have to get over that hump where it’s not too big to be dangerous,” Rogers says, warning that the Dow’s recent slide is just a reminder of what happens when stocks are in a bubble.
“That is not something that is going to go away.”