“Panic” is a five-letter word, but Monday morning many investors were looking for profane four-letter variants. Worse, they’d hit the sell button and run for the hills.
I can’t think of a bigger mistake.
Market volatility comes and goes. Over time, it rarely amounts to anything more than a speed bump in history’s rearview mirror. The Dow rose 22,935% over the last century through war, boom, bust, political mayhem, depression, recession and more. It will again.
That’s why the best course of action is to sit tight if possible, concentrate on what you know to be the bigger picture, and invest accordingly.
The best course of action is to sit tight if possible, concentrate on what you know to be the bigger picture, and invest accordingly.
I know that’s hard to do. Big down days are never fun. But then, neither is getting left on the platform after the train leaves.
That’s, unfortunately, where too many investors find themselves today (again), having sold in a panic. After Apple’s risen 18.79 percent from its intraday low Monday to Wednesday’s close. After Visa’s rebounded 17.81 percent. And, after Google bounced 11.25 percent.
It was much the same situation in March 2009 when millions sold out at the worst possible moment only to miss the unprecedented 186.83 percent run up that literally could have doubled their retirement investments and then some.
Today’s reality is that you will live through 20-40 of these kinds of big swings. So it makes sense to plan ahead.
Short-term market madness is a market event, not an economic dislocation. That means there are plenty of great companies on sale at scary-cheap prices for which the business case remains stronger than ever.
You’ll know 'em when you see 'em because they’ll be active in global markets, tapped into Unstoppable Trends and making products the world cannot live without. Everything else goes right out the window; it’s risk you don’t need.
So take a deep breath and keep the following in mind:
1. Corrections rarely run their course in short order. Despite the fact that the major averages have found a short term floor over the past few days does not guarantee this is over. In fact, I doubt it. Volatility remains high, which means the markets can swing in both directions. The markets almost never take a straight line higher.
2. Current market turbulence is about a crisis of confidence. Whether we go up from here depends entirely on whether or not traders believe the stability they crave is there…or not.
3. We’re still a long way from disaster. Despite the fact that the S&P 500 has fallen so dramatically, it’s nowhere near the 45 percent decline suffered in 2008.
4. Fundamentals always trump emotion — eventually. JPMorgan recently issued a report that nicely underscores this truism, showing that annual S&P 500 returns were still positive for 27 out of the last 35 years, despite average intra-year declines of 14.2 percent over the same time frame. The S&P 500 has dropped only 9 percent over the past six months.
5. Capitalize on chaos. Market madness is never fun, but over time it’s almost always profitable. That’s why buying is the better bet if you’ve got a 3 to 5 year horizon…even if prices go lower and even if confidence is tested still further.
Keith Fitz-Gerald is the editor of Total Wealth and Chief Investment Strategist for Money Morning since 2007, a market advisory service with more than a million subscribers. A market visionary with more than 30 years of global experience, Keith is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time – and one of even fewer to help millions of investors around the world successfully navigate them both. Follow Keith at www.totalwealthresearch.com.