Investing: Bottoms Up!
I am writing this week’s column from Vienna, Austria, where the question on everyone’s mind is: “Is the worst over for the U.S. market? Will it now start to recover?”
(Well, it’s the question on the minds of Americans here, I must say. Europeans are a bit more blas‚ about what has happened in New York over the last few weeks, which is understandable and almost enjoyable. They regard us with a bit of chagrin because – well, they’re older and wiser. They seem to have a broader perspective than most Americans, who are encased in the short-term history of our country as opposed to many hundreds of years’ history in most of the countries of Europe. It does tend to give one a different viewpoint, that’s for sure.)
Anyway, the question is still a good one, even if it tends to be a bit unanswerable. But let me make a stab …
It will eventually go back up.
It is the nature of stock markets to go down … and then to go back up.
In fact, if it doesn’t go back up, if it keeps going down and down and down, I’d say we’re in bigger trouble than just the depletion of the value of our stocks. If you notice in a month or two the Dow Industrial is at, say, 900, it’s time to decide whether you want to move to Antarctica and try ice farming.
Because the Dow Jones Industrial Average is a mirror of what is happening elsewhere in the U.S. (and world) economy, if it gets to the point I speak of, there’s not much that can save you. It means we are in a global economic crisis of epic proportions and most of what you own is relatively worthless.
If this becomes the case, I’m not sure I can help either you or myself and give you good advice in this column or anywhere else. If that happens, it truly will be every man (and savvy gal) for him or herself, figure it out the best you can, and make do with what you have and can keep.
However, before you fall on your sword or take pills to calm your fears, let me reassure you of something I firmly believe: the world is not going to come to an end any time soon. Your stock portfolio will not lose 100 percent of its value at any time in the future. Unless there is a totally unpredictable global collapse or military intervention (and in which case your stock portfolio then becomes the least of your worries), stock market recent “happenings” will eventually, quietly, surely end.
We all hear of the horrible consequences of the 1929 stock market crash, of fortunes lost, of men jumping out of windows in desperation because they had played their cards wrong. And these things truly did happen.
But what you don’t hear about very often are the men who quietly bought stocks at their all-time lows, having wisely maneuvered into cash when they saw what lay ahead, and then being able to take advantage of the depressed and decimated stock prices.
What came out of that and other stock market “crashes” was the phrase: “Buy when there’s blood in the streets”; and although it’s not very appetizing to think about, it is absolutely true. When you have the “guts” to buy when everyone else is selling, that’s when you can amass a fortune, and it was done many times over by men who had the bravado to take the plunge and do it.
It goes against every emotion and every train of behavior to do this, to swim upstream, to go against the crowd, to do what very few are doing, but it’s the way to capitalize on the ridiculously cheap stock prices available now.
Can you be certain you’re capturing a stock at its very lowest price, and it won’t go down any more in a down market? Absolutely NOT. (The Wall Street saying here is that you shouldn’t try to catch a falling knife, or you will get hurt.) But you can watch and wait and be alert and make a move when your gut instinct tells you not to do so. You can nibble, not jump in with both feet but carefully feel your way back in with a company that still has great numbers and a good future but which has gotten hit by the downturn. The next Wall Street phrase: “A tide going out affects all ships.”)
Is this risky? Yes.
Should you do it? Only if you have the stomach for it.
If not, re-read the last article, and sit in cash until you are brave enough to venture forth again.