No panic, but uncertainty drives investors to the exits

How appropriate to celebrate the two-week anniversary of the “flash crash” with another steep sell-off.

On Thursday, there was no 1,000-point drop in minutes to unnerve professional investors and novices alike. Rather, it was like watching a bout between mismatched boxers. The decision was never in doubt, only the extent of the damage.

The Dow closed down 376.36 points, which was 28.56 points worse than how flash-crash day finished.

We’ve seen a lot of triple-digit ups and downs lately. If you watch too much financial news on cable TV, you’ve heard talking heads express fear of the collapse of the 16-nation Eurozone and the end of its unified currency, the euro.

The operative word is fear, and if we’ve learned nothing else since the U.S. financial crisis erupted in 2008, it’s that fear and uncertainty can produce days in the markets like the ones we’ve just seen.

Two money managers I interviewed considered the selling overdone. David R. Kotok, chief investment officer of Cumberland Advisors, acknowledged that there are systemic risks on the sovereign debt of Greece and other European nations. “But the same is true in the United States among the 50 states,” he said.

I particularly wanted Kotok’s opinion on the hot-and-cold response of the markets toward Europe because of his recently published book, titled Invest in Europe Now! He corrected me when I called him a “defender of Europe” to say that his firm, which manages $1.4 billion from Vineland and Sarasota, Fla., champions “worldwide diversification, that includes the Eurozone and the euro.”

Kotok said he thinks the euro will survive and, once the currency stabilizes or reaches parity with the U.S. dollar, Europe will be cheap and a buy. “The price of a Mercedes in Beijing just got 15 percent cheaper,” he said.

Robert E. Turner, chairman and chief investment officer of Turner Investment Partners, saw Thursday’s sell-off as the product of investors’ “emotions feeding upon themselves.”

Definitely not a good day for a growth-stock manager, but Berwyn-based Turner Investment Partners sees opportunity during emotional times, when market players are “obsessed with the headlines,” Turner said.

As he sees it, the market rout was the product of worries over Germany’s impending vote on its role in the trillion-dollar financial rescue package, uncertainty over U.S. financial regulation reform, and concern that China’s economic growth was slowing.

In Malvern, Vanguard Group, the nation’s biggest mutual-fund family, handled a “slightly above normal” uptick in calls from investors, according to spokesman John S. Woerth. That’s pretty typical on days when the change in the Dow hits triple digits.

What Woerth called a “disconcerting drop” in the market was largely discounted by Vanguard investors.

Unlike two weeks ago, this plunge was explained away without a hint of panic, but perhaps with a desire for boring stability.