If you are anything like me, these wild market drops, and upswings are getting you a bit nauseous. I remember back during the dot com bust we saw similar price action…on a percentage basis. The thing that makes that time in history different is that it was caused by irrational exuberance and inflated stock prices, with PE’s well above where they were before the recent corona-crash.
Even the great recession has its reasons for dragging down the market. Our financial system had broken and people took on an extremely high amount of debt, sending stocks sharply lower and America into a panic. The difference is, we can’t predict when this panic will end. Scientists can discover a vaccine tomorrow or it could take a year or more. The uncertainty of the situation is what is making the market react the way it has been the past few weeks, and it may continue to do so until we have a clear vision and/or action plan.
After reading articles and listening to interviews by people who have been in this business for decades longer than I have, I’ve concluded that the best thing to do here – if you are a long-term investor – is do nothing. If you are in the game for another 20-30 years, there is absolutely no need to panic sell. The only thing that you are guaranteeing if you do is lost money. There is a very good chance the market will recover all of its loses in the next 12-24 months.
If you have a short-term time horizon then this gets a bit more complicated. Were you set to retire? Purchase a home? Pay for a child’s college tuition? These are some of the things short-term investors are worried about. I wouldn’t count on the market reaching all-time highs in the next year. I think we may have some more room to drop before everything settles and we put in a bottom. If you are looking at the short term, it may make sense to sell a bit during a rally like the one we saw on March 13.
If you don’t need your money tomorrow, don’t touch it. We have seen market crashes of up to 50% and guess what, it always comes back. Hang in there folks!