Capitulation: Hurry the ship is sinking everyone jump off!

Capitulation is what occurs when people in the stock market panic and start selling all of their stocks. This is typically defined by a decline in the markets of at least 10% in one day.

While this may sound like a very bad thing, it can become a positive thing as well if you are a wise investor. This is because after the panic sell off, a knowledgeable investor can buy some quality stocks at bargain prices.

It should be said that investors do not capitulate very often. The worst example was the stock market crash of 1929. It took 25 years for the markets to return to their pre-crash levels. Many things have changed since then to regulate the markets better so a similar crash is not likely. The next closest example would be in 1987 when the markets dropped 20% in one day. However, that time it only took 1.5 years for the markets to return.