“By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine.” Paul Krugman, Economist, 1998.
As you may know, the markets finally ran into a wall this week and crashed. Domestic stocks lost nearly $1 Trillion in market capitalization since equities began unraveling on Tuesday. The S&P 500 and the DOW shed 6% and the NASDAQ nosedived nearly 7%…making this the biggest sell-off in 4 years. The weakened economy in China was the main destroyer along with anxiousness about an interest rate hike.
Should you be concerned about your nest egg? Absolutely, you should. Will this pullback turnaround quickly…or will it last for a long time? No one has the answer. Whatever you hear from the “experts” and the economists (especially those like Paul Krugman above), don’t believe them. One of the greatest investors of the last 50 years, Warren Buffet lost 30% in one year…so there is no one with a constantly clear crystal ball.
The news media will try to scare you. They make money from advertisers, not from news, so their job is to get you to watch. As Rupert Murdoch, head of Newscorp, once said, “Most viewers would rather watch a car accident than see a young man helping an elderly woman cross a busy street.”
These are the questions you should be asking yourself: 1. Do I need my money now or in the near future? 2. Is this market correction worrying me to the point of keeping me up at night? 3. Do I have good investments that should perform in the long-run?
First, if you need the money now, then cash in. Unless you began investing very recently, you most likely have some nice gains. If things get worse, you’ll save some money in the short term…and no one should fault you for taking profits. Second, if you are having sleepless nights, then cash in some positions and lower your investment risk. You can do this by analyzing your current investments for volatility and making adjustments. Third, if you have good investments and don’t need money soon…leave them alone.
The only two proven investment formulas that I know are “buy low and sell high” and “acquire good investments and diversify”. Everything else is a guessing game. Having been through several of these market crashes and corrections over my 40 years, I can assure you that holding on to good investments over time usually works out very well. As Mr. Buffet says: “When investors are greedy, be fearful…when investors are fearful, be greedy.”
For the last 6 years, the markets have consistently traveled higher and higher. This latest bull market run has lasted 76 months, the third longest in history. We were bound to have a reversal…it arrived this week.
Please free to call or email me for additional perspective…or a personal analysis of your investments. In the meantime, as one client once told me, “If I get nervous about my investments, I go out and clean my garage. Usually, by the time I’m finished, things are up again.”
Mitch Fisher