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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
In some ways, the stock market is a necessity: a measure of how business is doing; a source of funds for companies to spark new growth; an outlet for any patient, diligent investor to consistently set money aside and see his or her modest savings morph into a fortune over time.
In other ways, the stock market is a depraved madhouse: a place where an errant trade can lose trillions of dollars in seconds; an opportunity for a few insiders to dupe millions of investors in a scam; a massive casino offering average people unbelievable returns if they merely have the guts to speculate a little bit.
As I see it, these perspectives are two sides of the same coin: Both are true without contradiction. The S&P 500 Index (SNPINDEX: ^GSPC ) , perhaps the most representative gauge of corporate America's economic health, fell 8 points, or 0.5% Wednesday, to end at 1,746, ending a streak that saw the S&P close at all-time highs for four consecutive days.
I think a cautious observation of Wall Street's pros and cons is an appropriate introduction to an article like this, which notes stocks in some of America's most esteemed companies that lose much of their value in a single day. Take Altera (NASDAQ: ALTR ) , for example, a $10 billion, 30-year-old semiconductor company that made investors more than $500 million last year. Shares plummeted 13.5% as net income dropped 24% and Altera forecast weak sales in the fourth quarter. The unpredictable nature of quarter-to-quarter results is a major reason famed value investor Warren Buffett requires a "margin of safety" in every investment he makes.
Not even $54 billion machinery giant Caterpillar (NYSE: CAT ) is immune from the stinging swings of the market. Caterpillar stock fell 6.1% after reporting a steep 44% slump in earnings from the same period last year. Caterpillar's success at this point is inextricably linked to the health of the mining industry; as precious-metals prices decline and the demand for coal ebbs, miners are ordering less equipment.
Lastly, F5 Networks' (NASDAQ: FFIV ) stock performance today epitomizes the troubling irrationality in the market that can scare away individual investors. F5 Networks, which makes application technology, shed 4.8% today ahead of its quarterly earnings report. Whatever fears drove the sell-off soon proved to be more superstitions than facts, as F5 shares surged in after-hours trading as the company beat earnings and revenue expectations for its fiscal fourth quarter.
Turn Wall Street's insanity into profit
Just because Wall Street can be a madhouse sometimes, that doesn't mean you as an investor have to partake in the insanity. Use Wall Street's frequent bouts of irrationality to your advantage, and eagerly seize upon these opportunities when you see them arise. As every savvy investor knows, Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love.