The World Won't End

The stock market and its investors have at least one thing in common: They both hate uncertainty. But no matter how bad things get, take heart -- you'll still have a chance to come out ahead in the long run.

Right now, the much-anticipated government rescue plan has just been voted down in the House. The Dow fell as much as 700 points immediately after the vote, reviving memories of the 1987 market crash. If you've nervously held on to your stocks so far, you may be wondering how much more you can take before panic sets in.

Don't lose focus
Investors take comfort in the belief that through hard work and a thorough understanding of the investments they make, they can find companies that will perform well and reward their shareholders. Yet even if you're confident about your investment decisions, it's still really hard to stand your ground through the market's irrational jumps and lurches.

Now is a good time to look at your portfolio, and make sure you're comfortable with the reasons behind your purchases. As long as your initial reasoning was sound, don't second-guess yourself now. It's too easy to panic and dump a losing stock, and then see it rebound when the market comes to its senses.

Make a long-term commitment
Unfortunately, you can't count on a quick rebound. During a bull market, stocks are fun to own, and they seem to offer free money with no risk. Now, of course, the opposite seems true. It's hard to think in terms of reward if you invested at the highs and have lost 20%, 25%, or even more of your initial investment.

But keep a couple of things in mind. First, if you keep adding new money to the market, falling prices may offer you better long-term returns. Yes, it might take years for you to get back to even on the money you invested last month or the month before. Yet the money you invest this month or next might show a quick profit if stocks rebound even modestly from their recent freefall. And even if this is the beginning of a long bear market, adding money now will still get you a big discount from what you paid before.

Second, keep in mind that in any bear market, a few stocks buck the trend. In the bear market from 2000 to 2002, for instance, tech stocks clearly took the worst hit:

Stock

Total Return for 3 Years
Ending Dec. 31, 2002

Microsoft (Nasdaq: MSFT  )

(55.7%)

Intel (Nasdaq: INTC  )

(61.9%)

Cisco Systems (Nasdaq: CSCO  )

(75.5%)

Source: Yahoo! Finance.

But not everything fell. Some stocks did reasonably well over that three-year period:

Stock

Total Return for 3 Years
Ending Dec. 31, 2002

Deere (NYSE: DE  )

12.8%

3M (NYSE: MMM  )

34.6%

Lowe's (NYSE: LOW  )

26.4%

Caterpillar (NYSE: CAT  )

6.8%

Source: Yahoo! Finance.

That's not to say the same companies that did well from 2000 to 2002 will outperform now if stocks keep falling sharply. It only shows that no matter how bad the market seems, there are pockets of good stocks -- if you know where to look.

Keep on pluggin' along
Some who watched the 1987 market crash firsthand were convinced that another Great Depression would follow. It didn't happen. In fact, it turned out to be one of the last great buying opportunities investors would have for the next decade.

If stocks keep falling now, don't be terrified, the way many were in 1987. Instead, be ready to pounce on some stocks you've been watching over the years. Unless you think our economic system is doomed to failure, you'll eventually want to have your money in stocks, too. The only question is how much of a bargain you'll get.

For more on investing, read:

Microsoft, 3M, and Intel are Motley Fool Inside Value recommendations. Picking stocks during market panics isn't easy, but it can be profitable. Inside Value analysts point you toward some of the most promising opportunities in the markets. Try it out free with a 30-day trial.

This article was originally published on Jan. 22, 2008. It has been updated by Dan Caplinger, who doesn't own shares of the companies mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy gives you security.


Read/Post Comments (2) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 29, 2008, at 4:09 PM, wirelesswalker wrote:

    Actually, the World will end, but before it does, "there shall be great tribulation, such as was not since the beginning of the world to this time, no, nor ever shall be." "Watch therefore, for ye know neither the day nor the hour"

    (Matthew 24, 25)

  • Report this Comment On October 02, 2008, at 7:28 PM, notstressin wrote:

    This last week reminds me of when I was a greenhorn back in '87, my first day on the job in October... The sky is not falling and to wirelesswalker, this too shall pass. You may enjoy reading "An Unexpected Tale," www.financialtales.com Thanks.

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