David Bowie and Freddie Mercury would feel right at home on Wall Street these days. The meltdown in our financial markets puts pressure on everything, the kind that "tears a building down, splits a family in two, puts people on streets" -- and worse.
It's the terror of knowing what this world is about
For most of us, the worst part of this crisis is its impact on our nest eggs. Blue chips and highfliers alike have suffered dearly in the last six months:
|
Company |
6-month Return (%) |
Market Cap (billions) |
CAPS Rating |
|---|---|---|---|
|
Google |
(16.9%) |
$121.6 |
** |
|
Apple |
(34.2%) |
$86.0 |
*** |
|
AT&T |
(27.4%) |
$165.7 |
**** |
|
General Electric |
(43.3%) |
$226.4 |
**** |
|
S&P 500 SPDRs |
(19.3%) |
N/A |
- |
Data from Google Finance.
Nobody is safe. Even the almighty energy sector can't provide a safe haven anymore; that market segment has lost around 25% of its value since early April, despite a spring rally. Silverback gorilla Exxon Mobil
Time to sell! Right?
Watching some good friends scream, "Let me out!"
No. Wrong.
Let's assume that you're not going to retire tomorrow, so you don't need to start making withdrawals from that 401(k) or IRA account just yet. You've heard the old adage "buy low, sell high," right? Well, if you're moving all your assets into cash and Treasury securities today, you're locking in some extremely low stock prices. You just bought high and sold low.
In contrast, if you hold onto your stocks, your portfolio will hurt for a while. But that's a great opportunity to buy quality companies on the cheap, like Warren Buffett does. General Electric has been around through wars, market crashes, and even the occasional corporate scandal. Now it's finally affordable enough for the Oracle of Omaha to take a serious position. You can't get a much stronger endorsement than a few billion dollars of that master investor's war chest.
Pray tomorrow gets me higher
Or look at it this way: The S&P 500 took a 20% fall in the Black Tuesday crash. A year and a half later, the index was back to the pre-crash highs, and it continued to march upward from there. Selling all your shares just before the crash, you could've bought 10-year Treasuries with a 10% yield. But you would've done even better just by sitting tight and holding onto index funds -- by late 1997, the S&P 500 had quadrupled in price, not even including dividends.
History is littered with stories like this, and each one gives us another reason not to sell out when the market is in trouble. Chances are really, really good that we'll make back what we lost before it's time to cash in those chips.
These are the days it never rains but it pours
Investors like you and I have plenty of choices in these turbulent times (in order of preference):
- Shove cash under a mattress and sit on the fence.
- Turn away from it all like a blind man.
- Go on stock-buying spree in this buyer's market.
It's crunch time, right now. What will you do?
Can't we give ourselves one more chance?
