The pundits have been predicting a stock correction or crash for many years. Now, after going about 6 years with no meaningful downturn in the market, we finally got one starting in the middle of August. September 2015 was ugly and you can see the big drop(s) the market has gone through and all major indexes were hit. If you own stocks, chances are high that you lost money last month.
For some investors who have been in the market for only a handful of years, this is a new experience. For more experienced investors this may be the second or third time they have been through this white knuckle period of high uncertainty and doubt. That means there are many folks out there that are scared and in panic mode (or near it) who have no idea what to do.
Doubt and uncertainty will send any stock market down every time. Investors the world over and throughout time hate uncertainty and use it as a reason to sell stocks. It is one thing you can count on with the same conviction that you can count on being taxed by your government. The markets WILL go lower when investors don’t feel confident about the events happening around them.
Many newbie investors will undoubtedly get flushed out of the market. They will take their losses, complain that it is all rigged, and many may never get back in. That is the unfortunate part of such sell offs but it is a result of so many investors never really doing their homework and not understanding the real risks of short term investing. Additionally, many rookie investors have had no way to test their risk tolerance until now as the market had only gone up during their investing life. Losing sleep over their investments is something that is completely new to many and now they are finding out that they can’t take the heat.
What am I doing? I’m just standing pat and taking the hits. I’ve sold a couple of stocks with high P/E’s that I thought might be more at risk than the others but I’m holding on to most everything else. I’ve still got a 20 year investing time horizon in front of me (God willing) and I’m playing the odds that at some point the market will rebound.
I’m also starting to buy a few stocks that have gone down that I would like to own, knowing full well that the market may still have further to fall. But this is one reason why you should never be 100% invested when the market keeps hitting new highs. You’ve got to have some cash on the side you can use to get in at lower levels if that situation arrives. At some point you’ve got to step in be willing to buy when the market is dropping. You have to be able to take advantage of lower prices and while we may still be a ways from the bottom, prices are getting better almost every day.