Monday, August 24, 2015

Stock Investing: Bloody Hell! Now what?

Damn, it's ugly out there.

This is it, the big market drop we've been expecting ... I think. Of course it depends how long it goes on and how far it falls. But we've been told for months (years, if you actually listen to the perma-bears) that the crash was coming. Or, the correction. Or dip. This is what we think now. We don't know anything until afterwards. A lot of folks on TV and their blogger equivalents will tell you what they're reading in the tea leaves, or what the historical charts indicate about today, or what we can glean from historical data ... yada yada yada. They're blowing smoke, folks. Anyone who says they know what we're looking at right now, or exactly why, or what's going to happen next, is lying. It's always different this time, and only hindsight is 20/20.

No one knows what the market is going to do, or even what to call what it's doing now. No one. Those questions simply cannot be answered in good conscience, even when one is well paid to answer them. So stop listening.

The only question we truly can answer is, What do I do about it?

Easy: Don't do anything. Yet.

I know you want to panic, sell it all, put the cash in your mattress and keep it safe from harm. But here's the thing: if you do, in many cases you'll be selling below your cost, which means means you will have bought high and sold low, which is an somewhat undesirable outcome. You will lose actual dollars-- different from theoretical dollars represented on a brokerage statement. Why? To "protect" your money.

Understand that in most cases there is nothing wrong with the companies you bought. Sure your holdings-- your share of ownership-- are in the red. But the businesses and their operations are fine: they are churning out quality products which are selling well and they're making their debt payments and taking care of both their employees and their customers-- which takes care of their owners. Nothing wrong. Their stocks dropped because all the other stocks dropped, and all the other stocks dropped because most investors panicked and sold.

Don't be part of the problem. If you sell you might prevent further losses. But markets are cyclical, they go up and then down and then up again. When will you get back in? You'll be looking for a signal that the rout is over, that we've hit bottom and it's safe to buy. But there is no signal. You will absolutely, with 100% certainty, miss the bottom. And likely you will miss the first good chunk of gains from the bottom as well because you won't be convinced that the turn is real and the worst is past. You'll want to see several days of strong market gains-- and that will be your signal. But those gains will now be behind you, and you're still holding the losses you took on when you sold due to panic. The whole selling-on-a-downturn thing is a trap. Don't fall for it.

Instead, hold on tight and get ready. Hold on because it could be a long and nasty ride down, with heartache and headaches and maybe an ulcer or two, given your investing time horizon. Get ready because soon it will be time to buy more of the companies you believe in. Because like I said, there's nothing wrong with them.

Next post, I'll break protocol, and provide you some specific suggestions. Stay tuned.

Drifting to Fifty | Random unrelated nugget of the week
Learn a sport you can play even as you age: golf, skiing, tennis, swimming, biking, hiking, even billiards or table tennis. Then learn another. The goal is to find something you love that will keep you on your feet and active the rest of your life. Your spouse will thank you.

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