Hooray, Stock Markets are Crashing!
By: Jack Strada – KOM Financial Planning
The title of this blog is not a headline you will read in any financial publication. Instead, you are more likely to read headlines screaming about how many billions of dollars of value has been erased from the markets. A google search on “Stock market crash” brought up the following gems:
Are Stocks 80% Overvalued? New Evidence Shocks Wall Street
Analyst: Here Comes the Biggest Stock Market Crash in a Generation
Famed Harvard Economist Predicts: “The Greatest Stock Market Collapse since the Great Depression”
This plays upon people’s fears and often leads to knee-jerk reactions from individual investors. In fact, this has been happening as can be seen from the data published in Bloomberg on January 9th:
As I have written before, this is exactly the behavior you want to avoid. Better to think like Warren Buffett, who has been quoted to say:
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” ~ Warren Buffett
So when stock markets drop, you need to look at it as if one of your favorite products is on sale. This is difficult to do, especially when you see the overall value of your investments has dropped dramatically. If you have a diversified portfolio of stocks and bonds; however, you can re-balance your portfolio and take advantage of the stock market ‘sale’. These are themes I repeat often in my blog: 1) don’t let your emotions influence your investment decisions, 2) market crises come and go, but in the long run, equity markets have provided a return greater than inflation, and 3) avoid market timing; rather, maintain a diversified portfolio and re-balance on occasion. Using a trusted financial advisor, one that acts as a fiduciary, can help you develop, and stick with, an investment strategy suited to your personal situation.
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” ~ Warren Buffett