On Friday, the collapse of Silicon Valley Bank SVB Financial Group (NASDAQ: SIVB) sent shockwaves around the world.
This recent “run on the bank” left several businesses and individuals unable to access their funds…
And after being stuck in limbo over the weekend trying to figure out how to get access to their money…
Many traders were asking me, “What does this mean for us as traders?”
Looking back, I traded back in 2000 during the dot-com bubble…
2008 during the financial crisis…
Now as this recent collapse isn’t anything new for me, but it may be for many of you.
This news can be chilling for any trader, but despite the recent collapse, I always have a game plan in place.
So if you were wondering what this means for you, be sure to continue reading.
What Happened To SVB
I teach all of my students to study the past, there is nothing more important than knowing your market history…
And I am incredibly proud of those who have taken the time to learn these valuable lessons I shared with them.
Being in this industry for several years, this isn’t anything new…
But before we dive in, let me fill you in quickly as to what’s happening, just in case you missed it…
Silicon Valley Bank sank from nearly $200 billion dollars to $0 in just 48 hours, making this the second largest bank failure in U.S History.
Over the weekend, there were a wide variety of businesses and investors who used Silicon Valley Bank that were sitting there hopelessly, crossing their fingers that they will be able to get their money back after its recent collapse on Friday.
So how did this exactly happen? Let me break it down…
Late last Wednesday, Silicon Valley Bank’s implosion just started to begin as it surprised investors with news that it needed to raise over $2.25 billion to help shore up its balance sheets.
How would a bank of this size ever get into this situation where it needs to free up over $2 billion in cash?
If you were to ask me, it’s absolutely horrible risk management.
It’s just like how nearly 90% of traders fail, they simply don’t understand the importance of risk management.
After this recent news break about them trying to raise capital, customers were now aware of the deep financial problem they were facing.
This caused investors to panic, and knowing about this issue, they decided to withdraw their money and send it elsewhere.
This is known as a “bank run”.
Unfortunately, if a bank does fail and you have over $250,000, you may never see that again…
These investors at Silicon Valley Bank were not willing to take a chance at losing all of their money, given the fact they aren’t insured by the FDIC since they had over $250,000 in the bank.
This type of withdrawal overload forced regulators to jump in and freeze assets, preventing any other company or individual to gain access to their funds.
So is all of this the start of a banking crisis as we saw back in 2008?
Who knows, but the immediate concern has been addressed, guaranteeing that all deposits of the banks to its customers…
So what does this mean for us as traders?
My Take On This Collapse
I encourage everyone one of you to continue up and read everything you can…
And study what is happening.
Just like I tell every student who joins my challenge the importance of studying the stock market history, so when events like this happen, you have an idea n how the market reacted.
On Monday, we saw quite a few bank stocks that fell sharply, here are just a few:
Are these banks going to continue their downward trend?
It very well can, but I am not looking to trade these types of stocks anyways…
Don’t believe those monkeys on CNBC that are telling you to buy these stocks, it’s an opportunity of a lifetime…
If you believed them for Signature Bank (NASDAQ: SBNY) you’d be singing a different tune right now…
I teach all of my students to take full advantage of any opportunity that comes about, but when you have this type of news and a crisis on your hands…
This could be the start of something more, so I am not willing to risk my hard-earned money in this time of uncertainty.
And neither should you.
So as all of this plays out, I plan to sit on the sidelines.
This doesn’t mean that I won’t take full advantage of a prime opportunity that may come my way…
But I am going to be extra cautious as we continue to digest all of the latest news regarding this recent collapse.
So if you are thinking this is an opportunity to buy the dip and we hit the bottom…
You may want to think again, it’s crazy to guess the bottom when you have significant news like this coming out.
Let’s face it, trying to guess the bottom of this market is like trying to catch a falling knife…
Your hands could get pretty bloody.
The last thing I want to do is get caught in a trade when there is so much uncertainty in this market.
My plan is to stay liquid, I am not going to force any trades at this time as we don’t know how bad this could end up…
Or what other banks may follow.
So stay safe, study up on all the recent news and I’ll see you here tomorrow!
-Tim
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