Like clockwork, every time the stock market falls by 2 percent or more, CNBC has a special segment devoted to analyzing the day’s “plunge”, “plummet”, or comparable euphemism.
As someone who has followed the market for 20 years, I’ve watched this type of programming as a form of entertainment and curiosity more than anything else.
In some ways, the network, in deeming the day’s market activity worthy of a “special presentation”, can evoke more fear and panic in viewers!
One of the things that bothers me about shows like this is that the market is doing what it has done since the beginning of time and these programmes may present the illusion that today’s activity, or “selloff”, is something that is unusual and out of the ordinary.
Let me start by addressing that point.
Here is a fact: over the last 50 years, the stock market has gone up 2 out of every 3 years. This means that you can expect a down year 1/3 of the time. We have not had a correction, or severe selloff, in over 8 years. This is highly unusual! If you are new to the market, however, you may not know that.
Now, am I 100 percent certain that a crash won’t happen? No. Neither is anyone else. But what I believe to be taking place is simply the natural order in which markets correct.
The second thing i want to address is the continued bad advice TV personalities give when they tell individual investors to sell, or “trim”, their winners.
I think that mentality is a very shortsighted, “trader” mindset – not the mindset of an investor.
If you sell your winners, you can guarantee that you will never participate in owning the next great long-term investment!
You would never have owned Walmart, Home Depot, Microsoft, Intel, Cisco, Disney, Berkshire Hathaway, and Amazon, just to name a few.
The reason why is that once you’d doubled, tripled, or even quadrupled your money, it may have been time for you to “trim” and “take profits”, according to television pundits.
Initially, you may have felt great because, well, you quadrupled your money! Now, quadrupling your money is always a good thing – don’t get me wrong. However…when you look at the returns you left on the table over the next 2 or 3 decades, that profit from quadrupling your money will look like mere peanuts when you realize that your $5,000 investment that you sold at $20,000 is now valued at $5,000,000.
In closing, let me just say this. I do not have a crystal ball, nor does anyone else. But I do have history on my side. And history tells me that the real money in investing comes from holding for many, many years.
So…if you do anything today, Joes and Janes, look for companies to buy.
Otherwise, do nothing!!!