Monday, September 15, 2008

Panic is Not Necessary

We've all heard the headlines this morning. It is a major, unprecedented series of events. But lets take it for what it is. Yes, these events are causing not only a crisis among these institutions, but a crisis of confidence. But in today's world we're getting used to so called "crises", right? But as investors, or even just people, there is no point in panicking. Our economy may get worse before it gets better. Many companies are hurting, but many are doing just fine. Its times like these that we need to step back, take a deep breath, and listen to some wise words of people like Buffett. "Be fearful when other others are greedy, and greedy when others are fearful." Have truer words ever been spoken in the investment world. Those who have the patience and cash to buy quality stocks in moments like these often come out ahead.

I read a good column this morning by Brett Arends at the Wall Street Journal. Here's an excerpt from this column.

There are a few things I know and they are material now. First, the people who stay at the table and don't make stupid moves here are going to be the ones who make the money in the years ahead.

Second, no one knows how much worse things will get, how much further the market will fall, or when things will turn. And you should not trust anyone who says they do know.

Third, trying to get rich quick is one of the surest ways to get poor quick, and the only way to win this game is to keep investing little, often, and broadly.

Fourth, most great investors made their money buying in a panic. If this isn't a panic, I don't know what is. My old fund management pal Dan Bunting, in London, accumulated a few rules of thumb over 35 years at this game. Among them: "Always buy the market after a spectacular bankruptcy."

Fifth, there are a lot of good stocks out there that are pretty reasonably valued. Even long-standing bears, skeptics and curmudgeons are starting to say this. These stocks may not be dirt cheap. Times may get much worse before they get better. But if history is any guide, buying good stocks when they are reasonably priced and hanging on for five years or more has tended to be the best thing you can do with money.

And sixth: At some point this will end and when the market turns it will be rocket powered. There will be no easy chance to get back in. Invest little, often and broadly. And don't panic.


You can read the full column here.

So stay patient, don't speculate. Remember the wise words of those who've survived many situations like the one we are in now.

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