How often have you looked at someone else in an unfortunate situation and thought, "It won't happen to me"? I felt the same thing in 2009 as I watched other people lose their jobs in the Great Recession -- and then it did happen to me. I was laid off. To make matters worse, at the time, I didn't have an emergency fund in cash to help cushion the blow. On a Fool Live show recorded on Jan. 14, Brian Feroldi and I discussed what happened and the tremendous profit opportunities I missed out on because of my lack of preparation, and give you a chance to learn from my mistake.
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Brian Withers: 2009. That was a tough year for our family. The financial crisis had hit, and the business that I worked for at the time was Dell. They were going through a big transition, and I was laid off. I was five or so years into investing and was really excited about the whole investing process, and wanted to have as much money invested in the market as I could.
I had a stable job, we had two kids, a decent mortgage with a decent rate, but I didn't have an emergency fund. Getting laid off was a bit of a surprise. I ended up selling some stocks to raise some cash. You'll love this list, Brian. Here we go. [laughs]
Brian Feroldi: March 2009 was a great time to sell Netflix (NASDAQ: NFLX), Nvidia, MercadoLibre, Starbucks
Withers: No. Those 13 positions, even with some of the losers that I sold, went on to average a 24-bagger return from there had I held until now. So I've been pushing this, I mentioned this in The Wrap yesterday: Make sure you have an emergency fund. Stuff happens. Have money outside of the stock market for your water heater. Who knows? There'll be a storm that damages the roof, [or] your car will break down. Hope nobody has health problems in the family. But there are a million things why you might need some cash that was unexpected.
A lot of times, those unexpected things aren't going to wait. I talked about being a "desperate seller" yesterday. I was a desperate seller, and trying to pick the things off that would raise some money, and I wasn't able to go back in and buy them. That was a tough piece. It took a while for me to get back in a job and get to where we had a stable cash flow.
Feroldi: Brian, what was your mindset in 2009 when you were going through this? Because I'm sure you realized, "I don't want to sell these things, but I have to."
Withers: Yeah, it was very much [that]. In fact, I sold them before I got laid off, or right around, either right before, or right after, to raise some cash, because I got a little bit of hint that I might be laid off.
I was scared. This is the first time I'd ever gotten laid off. I got a family, I got a wife and two kids at home. I knew eventually things would come back, but I felt like I had no choice, that I needed cash, and who knows what the market was doing at that point. It could go down even further. I did exactly the wrong thing at exactly the wrong time. I didn't feel like I could do anything different.
Feroldi: It just goes to show: Assume that you had an emergency fund in place, assume that you had multiple sources of income, assume that you had no debt. All of a sudden, downturns are not emergencies.
Feroldi: Or they're still emergencies, but your mindset isn't racing about," What are we going to do? We are screwed. We need to sell, sell, sell." [Instead,] it's "This sucks. But we can ride it out."
Withers: Right. Yeah. I didn't have any levers to pull. My wife was at home, she didn't have a job. The job market at that point was really [bad], I was very worried that I would be out of work for potentially even six months or more. We ended up having to move from our home in Nashville to San Antonio so that I could go back to work. But yeah. [inaudible] number 7.
Feroldi: That's a hard lesson to learn the wrong way.
Withers: Yes, it was.
Feroldi: I bet you will always have an emergency fund for the rest of your life though. [laughs]
Withers: [laughs] Absolutely. I'm good now.