Many investors both institutional and individuals sold in October 2018. What about you?

I am not smart enough to guess the best time to get out and return to the market, so I held my positions. I have survived numerous corrections, like this October 2018, where I lost significant PAPER Net-Worth. BY recognizing my inability to time the market and just sit still, my Net-Worth increases most years. Taking No Action is a strategy.

During two steep past corrections I panicked and sold almost everything outside my 401-K Plan. And then sat wondering when do I go back in? On both occasions I went back in AFTER the market regained at least 50% of its losses. So I lost out on that 50%+ gain. I consoled myself at the time; I can use the losses on my taxes. But guess what? Uncle Sam will tax us on every penny of gains but limits just how much of OUR losses we can claim. In summary, those two errors in judgment/panic cost me real dollars. I ultimately lost money when the market rebounded because I was huddled in a warm safe cave, in FEAR & ASLEEP!

People who panic over a volatile stock market, and immediately sell, going to all cash have a fundamental problem. When do you go back in? You were scared and lost some money. You DO NOT want to lose more. That’s why you pulled out. But now as you sit on the side patting yourself on the back as the market continues it’s downward journey, you become afraid to act. Some people remain afraid for months and some years. And typically, the majority lose out on the reversal when the stock market starts climbing again.

GROWING YOUR FINANCIAL LITERACY

Well in advance of serious declines in the market, you must EMBRACE that markets go up and down. If you buy the right equities, this is NOT a time to panic. In fact I will bet you $1, Warren Buffet purchased stocks in October. I know for a fact he purchased $1 billion of his own company’s stock. Warren Buffet and those with financial literacy and competency embrace that declines happen and it may be a buying opportunity! Market volatility is the NORM – USE IT TO YOUR ADVANTAGE!!

PICK YOUR FAVORITE EXCUSE- FOR SITTING ON THE SIDE LINES AND LOSING MONEY

• I have cash sitting in my savings account and I know how important it is to invest so I can take advantage of compound returns…but the market is going to crash soon, so I am waiting!
• This has been a world record in length bull market. IT
MUST END!
• It is going to crash soon.

CONCLUSION

The assertion the market will crash in the very near future is a belief NOT a fact. Few investors can predict what the stock market will do next. The majority who claim they can are speculating, guessing, forecasting or lying.

The market will eventually crash (FACT). The aversion to loss prevents some investors from taking their cash sitting on the sidelines and investing it. Not all at once, but using dollar cost averaging. {Next week’s blog will discuss Dollar Cost Averaging}

What if the market crashes two years from today? For those who remain outside the market they will be sitting on cash, in their savings account earning almost NOTHING

Worrying about investing right before a market peak is a valid concern — and it’s also distracting you from what really matters. It’s far more important to find systems and processes (Financial Literacy) to help you manage your own behavior so you can invest with greater success.

DISCLAIMER
Thank you to all my readers for reading this week’s blog and other blog articles.

I am a proud nerd (my beautiful wife and daughter told me so) investment and finance blogger, with a Rutgers, MBA and Harvard, Advanced Management. I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you. I am NOT however, a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or financial advisors.