The Pain of Patience

One of the most difficult times in investing is when a rational, long-term, diversified portfolio becomes blindsided by the heart-stopping emotions of a steep market decline.  As you watch the stock market drift ever lower, your primal instinct is to flee the apparent danger (although our pre-historic predecessors feared dinosaurs and not the news on CNBC).  Doing nothing is not particularly satisfying. 

Hopefully, you have planned ahead for just such an occasion.  Any money you need in the next year should be in cash, not subject to the vagaries of the stock market.  The rest of your portfolio should be diversified among various asset classes commensurate with your goals and risk tolerance. 

If this is the case, then you should not need to touch the equity portion of your portfolio for several years, at a minimum.  This means you can ride it out, however distasteful that may be.  Trying to time the market can often lead to losses by selling low and buying high.

If you are still fixated on the here-and-now, the following points (often contradictory) have been made by "the experts" in numerous conference calls and written commentaries as of late:

  • A lot of really ugly stuff is going on in the financial world, including excessive debt in the U.S. and Europe.  Numerous, serious problems need to be worked through.
  • The world economy is still growing, albeit at a slower pace.
  • While subject to change, corporate profits have been very impressive and their balance sheets are healthy.
  • Based on a number of commonly accepted criteria, it can be argued that stocks are relatively cheap.
  • Hang in there.

Hopefully you have created your investment plan in a time of equanimity.  Try not to let fear drive your decisions.

Words of Wisdom

One woman who I was dating called and said, "come over, there's nobody home."  I went over.  Nobody was home.  -- Rodney Dangerfield (because we need him in these times)