THIS Is What I’m Telling My Friends About Investing Right Now
Dear Rich Lifer,
I’ve been following the markets professionally for more than two decades now, and that period saw several major collapses and panics.
I was working for an Internet-based financial publishing company during the dotcom implosion …
I was living in South Florida – one of the hotbeds of real estate bubble mania – just as the financial crisis was getting underway …
And as I’ve told you before, I was actually in the World Trade Center when the first plane hit.
Quite frankly, the current level of panic and anxiety I’m seeing right now is far worse than it was even in my Lower Manhattan neighborhood in the weeks after 9/11.
Why all the Panic?
I suppose it’s because this particular black swan event has far-reaching tentacles that go beyond just terrorists in airplanes.
We can tighten up security just as we did then, sure. But the virus is already in all 50 states. It could be spreading throughout our towns as we sit at home. You or I could already have it and still be unaware.
That’s the psychological backdrop, and it’s causing people to freak out.
This is why, when my daughter and I went to Trader Joe’s yesterday, we were greeted by a security guard at the front door. His job was limiting the number of shoppers entering the store.
Once inside, we found mostly barren shelves – a lone can of jackfruit and a single carton of tomato soup in an aisle usually packed with everything from tuna fish to beans.
If everyone simply bought their regular groceries this kind of stuff wouldn’t be happening.
But it’s indicative of the fear and irrationality out there right now.
That fear – as well as many of the preventative measures being put into place – will reverberate into the economic spine of the U.S. and the world at large.
How bad will things get? How far will the virus spread? How long will this last?
I am neither an epidemiologist nor a fortune teller.
I do, however, have thoughts and opinions based on a couple decades of experience.
A Lesson in History
Let me start by saying this feels a lot like the level of panic I saw during the 2008-2009 market collapse.
In fact, I have been receiving e-mails and texts from both friends and distant acquaintances asking for my thoughts right now.
One friend essentially texted me, “Should I dump everything right now?”
The last time he ever asked me for a stock market opinion was back in October, 2008.
His message at that time was almost identical …
Date: Thu, 9 Oct 2008 15:49:07
Dude – Serious question for you? I am getting killed in all of my investments. Do you recommend pulling all my money out and just keeping it in like a money market account? At the rate I am going I am worried it will be all gone soon.
My response then – and now – was equally similar.
In a nutshell, I said it was completely up to him and his tolerance for risk and additional downside pain.
But I also said I personally thought selling anything was a mistake.
He would lock in losses. He would miss any eventual recovery. And this was especially true since he had several decades to let the situation work itself out.
I ended by telling him I had most of my own money in cash and was starting to buy and would continue to do so, especially if the decline continued.
That’s where I’m at right now once again.
The market can clearly fall a lot further from here, just as it did from October, 2008 through March, 2009.
At the same time, it eventually started recovering and went on to many news highs in the years since.
It hasn’t come anywhere close to erasing all of those gains, either.
Could we plumb those depths once again?
Anyone who says it can’t happen is either a liar or a fool.
At the same time, I sincerely doubt this is the “economic apocalypse” some are suggesting.
A More Realistic Take on the Situation
Obviously, the best-case scenario is a quick v-shaped recovery – both in the actual economy as well as the markets.
That could happen for any number of reasons – a vaccine… great results from social distancing and other preventative measures being implemented… additional governmental stimulus… etc.
Yet even the darkest scenarios seem fairly short-lived from a 30,000-foot view.
Based on everything we know about this disease and pandemics in general, it would end up being a catastrophic situation for many individuals and families but a relative blip on the scale of human progress.
This is not the plague and we are not living in 541 BC.
By all means, be cautious right now.
But, also know that I’m personally starting to put new money to work.
It can be difficult to do that and then watch your investment lose another 10%, 20%, or even more.
Like a sailor in a tempest, you have to look out toward the horizon to keep from throwing up.
The more experience you have in choppy seas, and the more you reflect upon the way you felt during those past adventures, the easier it becomes to continue moving forward.
To a richer life,