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Wednesday, January 20, 2016

Stock Markets Plummet, Do NOTHING!!!

Whenever the stock market is having a tough go of things I always get a kick out of the gloom and doom stories that begin to trend, and all of the wise men of the markets declaring "this is the end," "the sky is falling," and "cash it all in!" It's why I write about it so often. But what gets me more is the well known fact that, well...

We have been down this road time and time and time again.

The fact is, and remains, that the markets will move up and they will move down. And by the way, for anyone who has ever paid attention, they tend to typically go higher than where they left off before they fell when they eventually do go back up. And the markets always do go back up.

Currencies rise and fall. World markets expand and contract and shift. One day it's Japan whose the hottest growing country. Then it's China. Right now it's actually India. Consumer confidence goes up, it goes down, it goes dormant. Wages rise, wages fall. Banks are fantastic, then they are not. Same goes for auto companies, and by the way, every single company that has ever done business and every single market sector for that matter.

Tech is the doll. Then it's the financials. Then it's oil. Then it's durable goods. And then one day they aren't and something else is.

After the Crash of '29, after the recession that hit in the 80's, after Black Tuesday, and after the financial crisis of 2008, all were undeniably the worst markets to deal with obviously, but were also some of the best times to invest. Buy low, sell high might be considered old school to some in the current markets—but I think fundamentally the concept is still very much true.

And the markets are never lower than when they are down.

Wow. That's a brilliant statement, is it not? Of course I am being facetious. But more than buy low, sell high, what is really the point here is staying the course in good times and in bad times. On the averages historically, heedless of what the market does in the short term, you are going to come out ahead in the long term. And since you cannot predict what the market is going to do—ever—there is really no rational reason to try to "time" when you are going to add shares, or even perhaps when the best time to do that is.

It's always painful to see the value of your portfolio go down, and it's even harder sometimes to see the light at the end of the tunnel. What's easy is reacting to it—and it is also a very dangerous and unwise move when it comes to your invested money.

Of course I am speaking not to speculators here, nor traders. I am speaking to investors. Why is that an important distinction to make? Speculators and traders are not investing in companies. These folks are investing in short term movements in the markets. Be they short sellers or day traders buying long hoping to gain a few bucks on a momentum play, the reason they jump ship is because they are riding in a big ocean with heavy waves afoot in a dingy. They can't handle the rougher seas like a bigger boat or yacht can. Investors are the bigger boat, and they can ride out the storm.

This market will fall some more. That's to be sure. All of the indications with oil and a slowing economy in Asia and Europe point to that. But that's a time to buy, not to sell. And since you happen to be an investor invested in companies this just means that those companies, whose fundamentals really haven't changed all that much aside from being kicked around by other falling sectors and stocks, are going to be going on sale. That's when you load up, get more bang for the buck, and enjoy the ride back up eventually.

What's more, if you are invested in dividend paying stocks it's an ever better ride up since the shares you will buy in the downturn will obviously be cheaper, increasing the total yield on your invested dollars.

Sit tight, stand still, do nothing—well, other than buy more stock. The markets will find their current bottom, and then it's bottoms up. The smart money, the investors who ultimately understand the nature of these market dynamics of rising and falling will have won the prize and laughed all the way to the bank.

Mark my words...for the umpteenth time.

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