By: Larry MacDonald
John Heinzl wrote a humorous column in the Globe and Mail today entitled, ‘10 things the credit crisis taught me about investing.’ The part that made me laugh the most was the first lesson:
“All stocks are risky, even the safe ones. You can buy the most conservative stocks, focus on the most recession-proof industries and diversify until the cows come home, but guess what? You’ll still get crushed when the market decides to roll over. Why? Because the stock market hates you.”
I’m sure his ten lessons were meant mostly tongue-in-cheek. But, seriously, if one is letting recent volatility influence them and shake their discipline (e.g. Lesson 2: ‘Buy-and-hold, buy-and-schmold’), then they perhaps shouldn’t be investing in stocks.
The current stretch of bearishness has been extreme but investors have to realize it is part of the process. Stocks go up and they go down and one should only be in stocks if they have a long term view and can wait out the downturns. Money needed within five years should never be stocks.
It really does seem true that: “People may read an investing book that tells them they can get an average 9% per year if they only buy and hold stocks over the long term… However, when the market does crater, the actual experience turns out to be a lot different than reading about it in a book. Newspaper headlines are full of doom and gloom. The permabears get more air time and their theories of cataclysmic decline begin to look more plausible And so on: it’s truly a scary time, one that can even produce insomnia for some investors — and waves of selling” (from Why investors get burned, Jan. 17, 2008)
The thing to do is to stop checking the investment account. If your stocks are already down 30% to 60%, it’s too late to sell. Get busy with other things. The only reason to be watching stocks now is if you want to buy some bargains, do some trading, or rebalance the portfolio — otherwise get busy with work, family, etc. Put the market out of mind, unless it is to visualize what it will look like 3 to 5 years from now when the markets will likely be in love with you again.
For some thoughts on taking it a step further and actually increasing exposure to stocks, see ‘Psyching up to buy.’
7 Responses to “ The stock market hates you ”
I like your advice Larry, and very true
My portfolio is down -30% and I try to not even look at it (there is simply no way to recover)
I do look for bargains to buy, except… you don’t know what is LOW anymore, consider every company is breaking 52-week lows etc.. GE/BAC/CSCO under $20
By Jerry Hung on Oct 9, 2008
This is my first downturn as an investor, and I’ve got to say - the worst times to watch your investments are the hardest times to ignore them. I can avoid looking at my account, but it’s pretty much impossible to read any news source without someone spouting about a new Depression.
It’s certainly too late for me to sell (down 60%), so there’s nothing to be done but wait for a rebound.
By Neil on Oct 9, 2008
This advice from John Heinzl is a joke. Every broker/financial planner is a trained robot that spits out this useless rhetoric.
To all you investor’s, research on the web, read blogs, etc. I’ve done amazingly better. You’ll be way better off and soon realize you know way more than your beer swilling, cheezy golfing advisor.
By BB on Oct 9, 2008
I’ve been vested in the stock markets for the better of fifteen years, and this is the worst downturn that I have been through. Not only is it a steep correction(or crash), it also happened quickly.
The only market that I have to compare this to is the nasdaq meltdown. During that period, my stock portfolio value did not change for three years, although I was adding thirty thousand a year to the account. The money seemed to vaporize as soon as I invested it.Long story short,I stuck with the markets, seen my portfolio triple by the end of 2007.
I would have to say that in all of this, what I feel most is anger. I am mad as hell that the greed, arrogance and stupidity of a few corporate entities in the world cancreate this kind of contagion in the world. And I think too that the media is being irresponsible as hell because every tenth word in the headlines these days is depression(as in economisc depression).
My strategy going forward is not to sell a damn thing. I would rather ride every company that I own down to zero than sell at this point.
By WKG on Oct 10, 2008