Hear ye! Hear ye! The latest in national economic news: PANIC!
That’s right folks. It’s true. It’s pandemonium out there. I probably aught to be afraid (isn’t everyone?), but I’m actually pretty fascinated by the stock market decline. I wasn’t old enough to know or care about the Tech Bubble fiasco, and I didn’t know anything about the stock market after 9/11 (which was not a bubble so much as it was pure panic), so I’m counting this as my very first major economic downturn. Isn’t it just so exciting? We’re making history here folks. I can totally see myself in 20 years from now saying: I was a broker during the economic crisis of 2008. I got to see the decline from the inside! And people will say “Oooh.”
But in all honesty. It’s fascinating, but I’m also a bit boggled. Here’s the thing: a lot of the people I deal with on a daily basis have been investing in the stock market for longer than I have been alive. That’s long enough to have lived through at least two other extreme market downturns (in the 80s and the afore-mentioned Tech Bubble). Now, I don’t know about you, but loosing $10K, $50K, $100Million overnight would be a rather traumatic experience for me—not something I’m likely to forget. So why (oh why!?) do people forget those previous traumatic experiences every time the market dips even by the least substantial bit, freak out (just like last time) and sell everything they have to cash only to have the market increase enough to make up for the loss the next day?
Seriously folks. Someone please explain it to me. It’s like the most random form of amnesia there is, and yet it seems to affect a lot of people.
Disclaimer: If you are retired, or are close to retiring, I don’t blame you for panicking. No. I blame you for investing your money in highly aggressive stocks and/or holding all of your money in one or two different securities. Sure, that 120% unrealized capital gain and $5 monthly dividend was fantastic! But guess what, you didn’t capitalize soon enough and now your shares are worthless. Perhaps you’d be better suited taking your retirement money to a casino and playing the penny slots. At least slot machines play music and have flashing lights and sparkly stuff.
One of the very first things I ever learned about fashion and the economy is that they go in cycles (I personally am all for the return of leg warmers and slap bracelets!). One of the very next things I learned about the economy is that what goes down must come back up, and up, and up…you get the point. Yes! It’s true—verifiable even—the worst market declines are always followed by a rebound that exceeds the high points of the happy era before. That is why it makes all of the sense in the world to invest for “the long haul.”
Every now and then I come across someone who is smart. It’s not often, let me assure you, but it happens. Every now and then, amongst all the “OH MY GOD! GET ME OUT OF THE MARKET NOW! I’M GOING TO LOSE EVERYTHING!!” type of questions I get, a “I want to go ahead and get in the market now. I like how low the prices are at this point” crops up. Smart. The term “Low Prices” is the key point here. Every one loves low prices. That’s why Wal-Mart continues to spread through the entire world like the virus that it is. Low prices; who doesn’t love them? I can buy this for $1 less here than I can anywhere else? I’m sold. Price decreases are generally a good thing for the consumer in any industry—except for the stock market. Which, once again, makes absolutely no sense whatsoever. If you bought a stock at $85 and the stock drops to $75, you should buy more! (Granted, the company is still reliable—do your research, folks!) Think of it as a $10 discount on the awesome product that you just have to have.
Now here’s the trickier part: if the stock goes to $95, sell some of it. Cement in at least some of your gain, while keeping enough to profit from any additional gain. And take it from me: learn about trailing stop loss orders and how to place one. You’ll thank me later (I happily accept gratitude in the form of cash).
Investing in the stock market is not for the faint of heart (or the weak of stomach). But it’s not rocket science, people. Don’t want or have the time to research a sufficient number individual companies that will allow you to be properly diversified? Buy a mutual fund. Don’t have enough to buy a mutual fund? Buy an ETF. Don’t have enough to buy an ETF? You need to rebalance your budget. And hey, if hiding money under the mattress is more your style, I won’t hold it against you. Though, you may want to consider putting it in a savings account (at least!) to earn some interest—might as well keep up with inflation, right? Your cash sure as hell isn’t going to do that if it’s stuffed under the mattress.
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