When Stocks Slide What Do You Do?
Today I watched several more financial stocks getting hammered with speculation about bad debt and unfavorable balance sheets. Yes, I was glued to CNBC for most of the day and watched companies like Goldman Sachs (GS) and Morgan Stanley (MS) shed 30% in market value. As I’m writing this post news agencies are reporting that talks between several banks and brokerage firms are being held late tonight to head off another government bailout. All of this feels a bit surreal and can overwhelm our ability to think rationally. How are you dealing with the financial stress of paying your monthly bills and the thought that your portfolio may lose even more value in the coming days?
Here are a few things I’m trying to remind myself to stay calm:
1. I am a long term investor. The money in my 401k and IRA are not needed for over 30 years and markets will go up and markets will go down. Lehman Brothers might fail in 2008, but another investment bank will flourish in the next 30 years. We will always need credit and investments.
2. Turn off the tv and stop listening to the chatter of the moment. I find myself watching tv and watching my blood pressure rise with every new announcement. The stock traders are probably watching the same CNBC show and feeding off the same nervous energy.
3. Take a walk. Get some fresh air and clear my head. People are still working and shopping and kids are still going to school. My two dogs need to go for a walk and don’t care that Goldman Sachs (GS) is trading below $100.
4. Don’t call my bank again and ask about FDIC insurance. I’ve done it already and received the standard FDIC insurance mailing that every bank sends out. If you want some extra reassurance you can visit a new website that Susie Orman and the FDIC put together. It’s called My FDIC Insurance and you can check your particular bank.
5. Don’t be tempted. It’s tempting to try and jump on some fire sales on companies like General Electric (GE), Bank of America (BAC), or Goldman Sachs (GS). These might be fantastic companies in 30 years, but can I handle another 10-20% decline in stock price? I shouldn’t jump in a stock for a quick trade when I would be violating rule #1 above.
I need to remind myself to follow my own advice. I’m sure the first thing I will do is check CNBC when the market opens at 6:30am Pacific Time. I probably should just take the dogs for a walk and leave the tv off for the rest of the week. What kind of emotions are you feeling with these 400-500 point declines in the stock market? Are you checking your account balances daily? Has the sense of fear and doom hit your outlook for the market? Do you take a walk and just ignore the markets?
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Blake Said:
You said it all with ‘…can overwhelm our ability to think rationally.’
Trying to function properly when we are dead afraid is about the worst thing we can do. If we are terrified of what’s happening in the markets, it’s very likely we’ll make rash decisions that actually do cause us to lose money.
I like Graham’s advice: The news has it backwards. They report it as bad news when markets are down and as good news when they are up. We should all be celebrating cheaper valuations so we can lower our cost-basis. Instead your average investor is dumping all their shares right now and will come back in somewhere towards the end of the next bubble.
One thing I am doing is adding some physical gold and silver bullion to my investments. I don’t know how long or how severe this financial crisis will be, but I feel better having some physical stores of value tucked away. The more the fed tries to bail us out with printing, the better for gold and silver.
Posted on September 18th, 2008
passivefamilyincome Said:
Wow - The timing of your post is ironic. I had a similar article this morning on my site about the same types of things. Also funny you mentioned BAC and GE in your post. I own both of those in my portfolio and will be picking some up here and there over the next few weeks. Thanks for the tips.
Posted on September 18th, 2008
Scott Said:
@ Blake Interesting that you are buying physical gold and silver. Do you buy it online or from a local coin store?
@ PFI Yes, BAC has had an interesting week with the news of a federal bailout.
Posted on September 23rd, 2008
Blake Said:
Hey Scott,
I started out through a local coin shop, but they are always sold out now as people have been going nuts over getting bullion.
I recently bought some pre 1964 dimes (90% silver) from a reputable dealer on ebay. That went great.
I also bought some silver from the these guys- http://www.nwtmint.com/ . Shipping takes a while, and I’m actually still expecting my order (tracking shows it’s getting close), but they seem pretty professional.
Posted on October 1st, 2008