Capitulation: Buzz Word Of The Week

Capitulation.

It’s a scary thing. Yet, all the wall streeter’s seem to want it to happen.

Here’s a good definition from Investopedia:

In the stock market, capitulation is associated with "giving up" any previous gains in stock price as investors sell equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.

It’s actually a military term, originally. It refers to surrendering, or giving up.

My Own Capitulation

My own capitulation happened in January of 2007, not long before I started blogging here.

I had ran out of money, completely. finally. And I was ready to give up. Except, for me, giving up meant going back to my Mother to ask for more money (I had told her about my losses at this point, but not yet my Father).

It was one of the lowest, most shameful things I’ve ever done. I even threatened to skip town (I had been looking into fake id’s and everything).

I was, quite frankly, an ass.

That night, after my mother refused to give me any money (thankfully), I drove 3 hours down I-5 to Portland to confess to my father. It was the beginning of my complete transformation of how I related to money. It was also the start of my turnaround that I’m in the middle of right now.

It was my private capitulation.

I don’t think I’ve shared that story before. It’s not one I am proud of. But I remember that day like it was yesterday. And while things didn’t get easier, and there have been some rocky time, it was my bottom.

And when you’re at the bottom, the only way to go is up.