January 24, 2008, 7:00 am

Do Not Look Down. You Might Find Your Stocks At The Bottom Of The Pit

by: The Financial Blogger    Category: Trading
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Many people say that we are about to enter into a bear market. That the party is over and red ink stains will mark the financial statements of several companies. There are a lot of US banks that grant loans to individuals who cannot repay them. Everybody was so confident in the economy that they simply give away their money without looking at the person they were lending to.



We recently noticed Arab and Asian financial groups injecting 60 billion dollars in the US banks. 60 billion! Citibank was reporting a 10 billion dollars loss while Merril Lynch and JP Morgan were also looking for liquidity. And don’t think that situation is better in Canada! CIBC just issued for 2 billion in notes and National Bank did the same thing for 400M$. I’m feeling that banks are about to lose a big bet on the sub-prime market.

Unfortunately, financial institutions are always considered to be a strong figure on the stock markets. Therefore, if they are going down, they might drag several other industries and maybe the whole market with them. Is it the time to panic and sell? I don’t think so. In fact, it is the time to remember the reasons why you bought the stocks and mutual funds in your portfolio because you will need to convince yourself that their potential is real.

Several investors, including myself, have the very bad habit of looking at their portfolio on daily or weekly basis. This is basically the best recipe to start panicking. If you are like me, you sit on your computer every evening (or morning) and look at what the market has done over the past 24 hours. As stock markets are less stable than a maniac-depressive person, this is enough to make you want taking some Paccil!

If you invest with a time horizon of more than five years, you should not be worried of the daily fluctuation of your portfolio. As I said before, simply write down the reasons why you bought the investments that you are holding and look at your investment less periodically. There is no point of going back and forth with your investments; you will simply lose more money!

If you invest with a time horizon of less than five years, maybe you should not have to look at the market this way. Fixed income and highly conservative funds should be held in your portfolio. It may be the time to review your asset allocation!

Overall, the key point is to keep a steady investment strategy no matter how the markets react (or how you react to the markets!). Sometimes, it may take a few years before you can see the light, especially if you started investing at the peak of the market as we are right now!

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Comments

Good post.

I’m not really liking the new font – makes it harder to read.

Mike

by: The Financial Blogger | January 24th, 2008 (12:35 pm)

thx for letting me know, i’m still trying to find something better…. 😀

I still check my investments most days (partly because I haven’t had them for that long and it’s still fun to see the daily changes in market value) but when they go down it doesn’t worry me at all. All the money I need in the short term is safe where it won’t experience a big drop (and there’s time for it to go up some more before I need it), and I’m hoping the stock markets go down some more so I can add to my investments cheaply!

I would also suggest everyone stop listening to the media for a while. They seemed to have lost their minds lately.

by: The Financial Blogger | January 24th, 2008 (10:37 pm)

I hate medias 😉

TMW – you are absolutely correct. Their job is to sell newspapers etc – not inform us!

Mike

As a professional, I have to be aware of what is going on in my portfolio each day. But it takes a special kind of discipline learned over a decade of trading to be able to look at losses (or gains for that matter) and not be tempted to trade a position based on what is happening today. I don’t have it perfected yet (and probably never will) but I am learning to operate with discipline and focus to execute the long-term plan in the midst of short term irrational behavior.

Thanks for the important reminder,
ZDS

[…] Financial blogger presents Do Not Look Down, You Might Find your Stocks At The Bottom Of The Pit, and says, “Many people say that we are about to enter into a bear market. That the party is […]