It was a wild ride like nothing most investors have ever seen. What started out as a bad day for stocks as shown by the futures being significantly down before the market opened, suddenly became a bloodbath of declines that took the most experience investors by surprise. As the market opened, within minutes the Dow was down slightly more than 1000 points which was a breathtaking sight.
The prices coming across the ticker were incredible and it made one wonder whether World War III had just broken out. Apple at $95? Costco at $126? Under Armor at $80? You could pick a stock, any stock, and the price you saw was incredible. These prices were too low, way too low, and sure enough they didn’t last long. For the next several hours the market fought its way back and these bargain prices were erased, at least partially. And then the market went down again but those outrageous lows were never seen again.
August 24th, was a full out panic which caught many people with limits on their stocks off guard. Many investors came home that night to realize their stocks with low limits had been sold at those low prices. Additionally, that crazy several hours of trading followed by Tuesday’s big reversal down at the end made many people sick in their stomachs, enough to just want to get out of the market and sell everything.
But that is/was the exact wrong thing to do and why you need to only buy stocks with money you don’t need for a long time. Any panic drop like we saw last week shakes out many a weak investor and many short term investors. They lose money, probably to never return and then complain how it is all somehow rigged. But for investors with a long time horizon and with money on the sidelines, any big market downturn will be used to buy. Buy for the long term as that is your best chance to beat stocks.
The stock market isn’t for placing bets like you do at a racetrack. The race isn’t over in a day, week, or month. Short term thinkers in the market take on the added risk that their timing is right and that is a long shot for most, whether they are experienced or not. But patience is often rewarded when you have time on your side and have the strong stomach to sit on the sidelines and not sell during those gut wrenching down days.
Don’t gamble with money you can’t afford to lose. And don’t buy stocks with money you can’t afford to lose either. It is a basic principle that so many investors never are able to grasp and that leaves them selling at the worst time possible and taking losses they probably shouldn’t be taking. When you sell at the low on days like Monday, what does it take for you to get back into the market? In most cases if do sell at the lows you end up buying back in when things are more “stable” which means prices are much higher. THAT is why so many people lose money with short term thinking.