The psychology of doom. After so many unpleasant surprises, investors have come to expect the worst. According to this view, various shadowy problems will combine in a downward spiral to create a double-dip recession.
You’d think that I pulled the above from a current WSJ or Barrons but in fact I was cleaning up a mess in my basement this morning because my ‘highly recommended’ dishwasher’s heating element burned a hole in the tub, sprang a leak, and soaked kitchen, basement and everything in-between. Moving water- logged boxes around when I stumbled across an old Money magazine. Inside was an article I had earmarked, probably for my radio show. The article was written in July 2003 when the stock markets were still touchy after the dot com mess which started in March 2000 and took all of about 2 years to run its course.
If you remember back in the late 90s you couldn’t swing a yo-yo without hitting someone who wasn’t pushing a dot com stock or the new-new math where 2+2 equaled 5 or any number some wide eyed analyst wanted it to be. Today it’s different players and different sectors but close your eyes and it’s still pretty much what we went through 10-years ago. That’s because the basics of fear and misunderstanding have not changed.
When we get into such catastrophic economic events it is truly hard to see the forest for the trees. Emotion clogs up reasoning about as well as a Five Guys Burger an artery.
Yes, there are differences between 2000 and today. If you owned large caps instead of small cap or dot com stocks you only had one bad year back in the 2000 crash. Things started perking up in 2003 but investors were still wary. Today we’re getting our investment portfolio back but housing is years off the mark and jobs don’t seem to be improving anytime soon. You didn’t have that back then.
The big difference between 2008 and the 2000 dot com meltdown was that the 2000 mini-crash didn’t kill global employment or housing. It did expose that some mutual funds cheated customers and Wall Street touted bad companies simply to keep their investment banking lines open.
The ‘08’ recession is worse with far more people financially hurt even though they had absolutely nothing to do with investing or housing. It didn’t make any difference this time if you were an investor or someone just working to make ends-meet. Everyone’s been hurt.
Hopefully we will not experience another meltdown for at least a generation but if we do here are some tips to managing your money and sanity:
- Don’t panic- you’ve been through recessions before.
- During market free-fall don’t sell assets. You don’t know how deep or shallow the drop.
- If Jimmy (Ze Mouth) tells you to sell stocks, hide in your basement or run to the woods, ignore him.
- Don’t do anything for 30-180 days. You need to have the dust settle and some of the emotion to leave the market.
- If it’s a significant sell-off cut loose your most speculative holdings if you need immediate cash for the next 12 months.
- Check your investment’s histories on how well individual stocks and funds performed during other market sell-offs. This may help you sleep better at night.
- If you have the financial resources continue to buy the same investments you currently own.
- Have patience. Economic events don’t bounce right back. You need time to get things going right again.
- When things seem to be where they should be this will be the time to re-evaluate where you are and what you own. Don’t try to do it in the midst of a crisis.
- Finally: A glass of burgundy is always good for the digestion and nerves.
If you have questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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