Time to panic--Not
Crazy. Wild. Exhausting. Confusing. What's your favorite word for describing the stock market's volatility? Bloomberg estimates that some $6.8 trillion in stock market value vaporized from July 26 through August 11. (That $6.8 trillion figure is about the size of China's economy, according to Global Finance!)
Bargaineering.com is a widely followed personal finance website. Founder and blogger Jim Wang tells us what he did while the market was making its record swings.
Jim Wang: The last week has been tough for anyone who has any money in the stock market. Watching the indices drop 5%, then jump 5%, then drop 5% is liable to freak out even the most stable and level-headed investors. I know that when I saw the market fall on Monday, my gut reaction was to do something. Anything. I couldn't be paralyzed by fear and watch my 401(k) balance fall another 5%, right? Should I sell and wait on the sidelines to come back in?
That would've been the worst thing I could have done. It's common knowledge that people are terrible at market timing. People who sold after Monday would've missed the rally Tuesday. People who decided to buy in after the rally on Tuesday would've seen their holdings drop on Wednesday. How many people sold before Monday and bought before Tuesday? Not many. Trying to time the market is tantamount to believing you can outsmart the millions of investors who do this for a living.
So if I'm not going to sell any of holdings, what did I want to do? I thought back to the credit crisis, the last time the stock market gyrated like this, and started to regain my composure. So instead of panicking and selling my stocks at a discount, I bought shares in rock solid companies I've always wanted to own.
On Wednesday, I purchased shares of Disney after they released a pretty good earnings report and were punished, along with every other company, by the overall market. I was rewarded by a small recovery but, more importantly, with discount shares in a company I wanted to own before it went on sale. A financially stable company with a small dividend at a big discount? Now is the time to buy those stocks, not sell them.
If only they offered as big a sale on their theme park tickets!