You can just feel it, can't you? People are stone terrified about how the market has acted over the past month. Watch the news -- watch BubbleVision, if you dare. The "boo-yahs" on Mad Money seem more restrained. Jim Cramer acts grateful when they come at all.
The most painful flat market
The S&P 500 is now a little bit down for the year, but this fact misses something important: the tenor of how those results were achieved. The S&P quickly went up, but then it came barreling right back down.
For small-cap investors, the drop is even more severe -- in the space of a month, the Russell 2000 has dropped 15%. And if you want to see real pain, look at the people who piled into overseas markets and securities. The Bombay Stock Exchange is nearly 30% lower, and the Russian and Brazilian markets are more than 20% lower than they were a month ago. That's gut-wrenching, and people are wondering what to do. Suddenly, all of the things we ignored two months ago -- inflation, energy costs, the potential U.S. collapse in the World Cup -- are big, big problems. Gold and silver companies, too, have been taken out and shot.
Everyone is thinking this is a terrible time to be invested. But when everyone is thinking the same thing, no one is thinking much at all. That means ... opportunity.
Want to know when I like my stock purchases best? When I have a faint feeling that I'm going to throw up when I make them. Last year, Elan
Those are the moments when fortunes are made. You might not recognize it at the time. You might not know it for years. But it's true. When everyone is down on a stock, or a sector, or a country, you might as well take a look. Usually, the negativity comes with good reason. But the over-negativity can provide plenty of opportunity. It's been that way forever, and it will always be so. A small list of companies that have been despised by the market, only to rebound mightily, include Citigroup
The Foolish bottom line
I don't always get 'em right in Hidden Gems, and you won't always get 'em right when you invest. No one does. But the thing is, you don't have to be right every time if you're buying good or great companies when everybody hates them. The thing is, the stock market is mostly rational. Stuff's hated for a reason. But as we have seen time and time again, market sentiment goes too far in one direction or the other. I believe that there are plenty of places where the market has overreacted. They were excited, and now they're not. And that makes me excited.
But I might have to throw up first.
Bill owns shares of Elan, and he likes to do Sudoku puzzles in pen. The Fool's disclosure policy made him tell you this.