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What Happened to 1 Investor Who Didn't Have an Emergency Fund

By Brian Withers and Brian Feroldi - Feb 17, 2021 at 10:00AM

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Bad things happens when you least expect them. Make sure you're prepared.

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.

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.

Withers: Right.

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.

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