By buying the panic, in effect you are selling out "of the money put options" to the rest of the market. In effect you are selling insurance policies saying things are not worse than they look. The performance characteristic of selling OOTM options is that most of the time you make money. But...
Once in a while you lose your shirt. Ask Victor Niederhoffer. What is there is a catastrophic meltdown and Tokyo has to be evacuated? What will the Nikkei be worth then? What about all the people who bought dot.com stocks after they fell 50% because they were "cheap".
When considering the merits of investment, it is worth asking:
1. Am I selling insurance to someone without realizing it?
2. Does my strategy amount to nothing more than leverage? Leverage works well in rising markets and works very badly in falling markets.
3. Are there hidden risks I am not aware of but someone else is? Or as Buffett puts it, have you been playing poker for an hour and still haven't worked out who the patsy is? (It's probably you).
4. Are you taking uncompensated risks like putting 1/3 of your net worth into one company when you could be diversified for no cost?
On the other hand out of the money put options have a limited upside.
Japan has had a crap economy for a generation, and this disaster may result on them being on a whole new course with massive upside.
http://www.google.com//finance?chdnp=1&chdd=1&chds=1...