Posted by Tim Stobbs on January 22, 2008
Every article I’ve read yesterday about the market drop all seem to say”The sky is falling!” I’ve read that Chicken Little story a few too many times to my three year old, so don’t mind me as I’ll just put it back on the shelf. If you don’t believe me let’s run down a few myths about down turns in the market.
- I’ve lost $X dollars! No, actually you haven’t lost a cent. You only have a lose if you sell and vice versa you only get a gain when you sell. So how regardless of what the current sell price is it doesn’t effect you until you put in a sell order. It’s sort of like your market value of your house, it’s not really that relevant until you sell.
- Buy gold! Not a great idea. Just about everyone else is already buying gold which drives up the price. So if you sold believing myth #1, you are selling low and buying high.
- A fallen stock price will always rise. Sorry that one just isn’t true. Some of the stocks that got hammered were either over valued or had their situation change and they deserve to drop.
So what are we to do? Sit down and take a deep breath. Good. Now take another deep breath. Repeat until your pulse slows and you start to feel calm.
Now you have a couple of options right now. You could go shopping in the market for bargain stocks, or sit on the sidelines and see if the meltdown turns into panic selling which may drive down things further. For those die hard index investors you could start picking up some more mutual funds or ETF’s if your asset allocation is off your targets. In the end it is your choice.
Me? I’m sticking to my plan and giving this all some time to settle out. I’ve just have gut feeling this spring has just a little too much tension left in it, so I’m going to let it unwind.