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What To Do When The Investing Majority Panics!

19 June 2008 2 Comments

With the Dow teetering on the important, yet unimportant, 12,000 level, many investors are panicking. Many investors look like a deer caught in the middle of a road with a car quickly approaching while their 401(k) plans continue to drop in value. Well, thankfully, we’re here to help you turn your panic into glee. I, for one, welcome these times when many panic. It is a beautiful time to be a young investor.

As an investor, it is important to remove emotion from your investing decisions. The last thing you should do is rush to your computer, pull up your online brokerage account, and sell positions when you read a headline about the crappy economy or the Dow plunging a couple hundred points.

Good investors are methodical investors. Good investors revel in other’s panicky states. Let’s look at a couple tips to help you dominate when others capitulate.

TIp #1 – Recognize the economic environment

What does the economic outlook for our country look like? What does the economic outlook globally look like? Most investors aren’t acclaimed economists so let’s do some common sense analysis here. Right now, we have an economy that is not creating jobs, we have record high food and energy costs, and we have more people paying mortgage payments they cannot afford than every before. What would you guess this scenario would mean?

Yep, the average Americans do not have much discretionary spending these days. This means that Americans are not spending money on new cars, are not doing home improvement projects, and are not buying as many gadgets or clothes or you name it. If so, why are you long Home Depot, KB Homes, and General Motors?

Counter this trend by pulling money out of domestic stocks unless they are energy related. Pulling money out of some stocks and into cash is also good. For aggressive investors, you may want to short various sectors. Oh yeah, stay away from financials also.

Tip #2 – Broad market trends drive individual stocks

It is important to understand that 3 out of 4 stocks will follow the overall trend of the market. This is a good thing! Why? Because it allows us to buy great stocks at a discount when the market sucks. If you’re favorite stock goes down 5% because the market is tanking, why are you upset? Your stock just went on sale allowing you to accumulate more of a great thing.

Remember, buy low and sell high right? Well that requires you to put emotions aside because human nature wants us to sell our favorite stock when it goes down a few points, but this is contradicting to the buy low and sell high concept! If you have done your homework and know the long term potential of a company, you better be buying more shares when your stock goes on sale.

Tip #3 – Combat panic with laughter

It’s fun to get a kick out of the “experts” on CNBC who are consistently wrong. You need to understand that CNBC cares about ratings. Therefore, they analyze every movement in the markets when most of the movement doesn’t matter. You care about making money over the long term and CNBC cares about ratings. These two desires do not mix. If CNBC came on the air and said “Buy Philip Morris now, buy more when it drops, and hold it for 10+ years. Good night.”, their ratings would suck.

Instead laugh at the ridiculousness of CNBC and their endless analysis over why the market is down a half percent.

Good luck in your investing. Have any stocks you are smiling at as they follow the market lower? I’d love to heard your feedback.


  • Dividend Growth Investor said:

    I have never found watching CNBC to be helpful at all at picking stocks. Even when I was an active trader watching CNBC was not recommended.
    But I agree with you that when everyone panics, you should step in and purchase good quality companies at a bargain price.

  • Michael Henreckson said:

    In my opinion much of our current “recession” is the fault of the media over-analyzing and using miniature downturns to boost their ratings with sensational stories of pending economic crash. I suspect that some of them are happy to do this because they see it as a chance to discredit Bush and other Republicans before the upcoming election.