Fear Driving the Stock Market
We’ve seen a lot of loss in the U.S. stock market this week with the Dow going down below 9000 for the first time in 5 years. Our bad economy is having a global effect hitting the Asian markets, the European market, and all others too, I’m sure. Despite the crisis with financial institutions and it’s effect on housing and mortgages, The Wall Street Journal and others in the know agree… it is lack of confidence that is driving this poor economy. Yes, we had problems, and we put a safety device in place but it caused a lack of confidence in people and now fear is causing more problems than we started with. t’s like when someone screams fire in a crowded building and everyone panics. They all run for the exits and people get trampled and hurt, even when it’s a false alarm.
We’re being told that we should not panic even after this “black week” of seeing the Dow go down below 9000 for the first time in 5 years. It’s hard not to panic, yet we really have no other choice but to be calm. When you’re in panic mode, someone telling you “don’t panic” just doesn’t always seem to sink in. If you think of this as the same advice they give in any emergency situation, then it makes sense. Fear and panic puts you (and everyone else around you) in harm’s way.
Recessions Can Make Millionaires!
It’s recessions (or crashes) like these that can make millionaires out of investors. If you keep a steady head and refuse to panic you can make money but you have to think long term. Warren Buffet makes his money solely from the stock market and is he letting fear dictate him in this market? No way! Warren just surpassed Bill Gates as being the richest man in the world by making over $8 billion in this past month (earnings from the end of August to October 1.) As Warren has said many times before, all we have to do is think smart and use this and every recession as an opportunity to buy low and sell high just as we are supposed to do. He puts his money where his mouth is and he buys low (but of course low to Warren Buffett can be considered very high to the rest of us! lol) and when he does sell, he sells high. Warren invests for the long term and he doesn’t panic and pull all of his money out of the stock market while it’s down… and neither should we.
Are You Buying HIGH and Selling LOW in the Stock Market?
We all know the first rule to the stock market is to “Buy low, sell high” but historically that’s not what the average individual investor does. Most of us don’t usually make much money in the stock market because we do the EXACT opposite. Individual investors tend to only buy when times are good and they hear how well the stock market is doing in the news. As a result, they make a few bucks here, and a few bucks there but the minute the market goes down, most individual investors actually SELL their stock and get out… so not only do they not make any money in the stock market, they lose money. Then they go back and do the same thing again when times are good and the market goes up. (and it ALWAYS goes up!)
Many people stop putting money into their 401K plans, IRAs, and mutual funds when they hear things are bad in the market. When you do this, you miss out on a great opportunity to be buying stock at a low price which is the whole point of investing. If you keep putting your money into your fund regularly, you’re buying shares in the fund at a low price and that is GOOD! (You’re buying low and you’ll sell high later on!) The worst thing someone can do is to close their 401 or retirement plan just because the market has crashed. Not only do you lock in your losses, you also have to pay the capital gains taxes on those losses, and a 10% penalty on top of that! Wow, talk about a loss…
Don’t act out of fear!
So don’t act out of fear! Keep a level head and know your options. If all of this talk about the stock market really bothers you, then just don’t look at your statements for a while. I know it sounds crazy, but that’s what the experts advise and hey, we really don’t have many other options, do we? If you’re already in the stock market you have to ride it out, and look for opportunities to buy some good stock if you have the money right now because there are deals to be had (and there will be more!). The only other alternative is to take a loss. It’s your money and your choice, but don’t let fear rule your actions.
Comments
Hey ,
Nice article.
I have just written a similar blog entry. Check it out when you get a chance,
TD
Hi JJ . Great post. I agree 110% with you. The worst choices are made when you allow yourself to act out of FEAR. Do not go against the current. Find your rhythm and think twice. I feel this is a great moment to invite Oprah LOL
or Jack Canfield ~~Laura
Great article. I belief in whatever condition still have opportunity. Those who not panic and know how to explore the situation will really make money. In current economic down turn I’m sure somebody are making profit.
hey hey:)
Nice to read a post from you again!
Yes now is a time to start using maybe 10-20% of your money to start accumulating blue chips stocks like oil companies, siemes, seneral electric that are all at their lowest points in over 10 years. It might not totally be the bottom yet but like you say, it always goes up. Warren buffet has a strategy to buy low and then keep it for years and years, eventually making fortunes:)
Ver good point. It is hard not to be fearful at this time since everyone keeps talking about the economy. I never looked at it the way you say that we are buying shares at a low price when the stock market is down. It sounds good I just hope it works.
That’s a very good point. Should I invest now or should I wait for the market to plunger further. I never know when to enter the market. Any advice?
curiousman
Laura at Whateverebay… Sure, I’d love to see Oprah or Jack Canfield on my blog any day! lol (maybe if we put enough thought out there, we can attract them. ha)
bonoriau, and dirk… I have IBM stock and it’s gone down even though IBM is doing great and made a profit! I also have some energy stock that was a gift and that has gone down in price a lot. I’m putting more money into them to buy as much as I can while it’s low as I know they’ll all come back up later. (Google is down in the $300s)
Ada… If you just keep putting into your 401K while it’s low you’ll have mor shares later when the price goes up. I’m keeping my fund going and I’m putting more into tech stock.
online fortune… I think it would be great to start now then add a little each month (or every 2 weeks if you can) that way you keep buying share during the lows. I have some money right now so I’m going to buy into some different companies like Applied Materials (AMAT)… it’s a semi-conductor company, solar power and all that. It’s at $12.70. I’ve done very well buying stock in the $10 range. (and I want to get into the Foreign Exchange sometime such as China’s utilities, transportation, car mfg, etc.)
Yes really fear driving. But this is near the bottom line of stock exchanges. So if you have money which is not needed in near future, buy stock and it would be a good investment.
I agree with you JJ! Its amazing how the great depression created so many millionaires. We have to remain focus – even though this is a trying time in America this is one of the best times to be alive. Because of the Internet and various communication devices we have access to the world. Offshore account are easier to join, outsourcing, selling product to consumers in other countries, affiliate marketing etc. The sky is the limit. But we have to change – leave our conformity. Making money in front of a glassy screen with a plastic keyboard would have never made sense 60 years ago.
Also, there many foreign exchanges being traded in our market – So buy low and sell high
Hi Ezekiel… I like your outlook, as always.
I can’t wait to get into the foreign exchange (little by little of course) We are so lucky to have a chance to invest in other countries as they do ours. It’s a win-win situation.
Sometimes it feels like most of the worlds money is controlled by the jumpyest people in the world. One morning (i think it was even today? i dunno it’s midterm season so my brain is fried) the DOW took a major dive because someone said it’s going to take awhile for the economy to recover.
I’m far from an expert, but the first thing that came to mind when i heard that was no shit, not oh my god time to cash out all my investments, and make things even worse.
Excellent Post!
It’s true, many people are doing just the opposite of what a smart investor should do. They are buying high and selling low. Which is why right now is a great time to pump out more money through the savings you are getting (gas, reduced demand, etc.) and put it right into the stock market. You will be rich by the time we are back up.
Fearing will not make any good cause. Superstition is a form of fear. It is also a sign of ignorance. Men who succeed keep open minds and are afraid of nothing. Hold the confidence and thats the key in whatever be your activities.
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