"Exposure to the core contributors of the G&K thread really helped keep us on a level emotional keel during those dark weeks when the NASDAQ just would not stop dropping."
I received the above in a PM (quoted with permission) and it reminded me that I wanted to take a look at the market's recent dark days to see if we could learn a lesson or two for next time.
Since this had been the first real taste of a bear market for many new investors, some may not realize that many patterns repeat again and again. When the next one comes around (and it will) perhaps we can be better armed to deal with it.
The thing that irks me the most about market downturns (besides seeing my portfolio's value shrink) is the number of snakes that come crawling out predicting doom. It happens every time. Get some market weakness, see some widespread concern and fear, and the doomsdayers will appear. On TV, on message boards, in the newspapers. They predict with great certainty that this is the end. The good time are over - they were just an illusion anyway - and now the day of reckoning, which is at hand, will be severe. Seemingly smart people draw parallels with 1929 and other dismal periods and gloatingly say ‘I told you so'. It's amazing that anyone can keep their heads.
The trouble with these predictions is that they appear to come true. A markets is down 20%, someone calls for another huge fall and a day or two later the market is now down 22%. Oh my, it IS happening. More join the dark side. Outpourings of grief and despair abound. The only safe thing to do is sell, they say. That is why so many people do sell at the bottom.
Now I am not saying that every prediction of a market drop is wrongheaded, or that some sectors can not get wildly overvalued. Clearly people investing in money-losing, illogical-business-plan dot coms needed a wake up call. But for people who invest like we do on this board, in quality companies with strong fundamentals, rapid growth and significant earnings, reasons for real panic are rare.
The post I addressed this message to was one I wrote on May 26 (#25,396) just about the lowest point for the NASDAQ. In that message I suggested that people NOT sell. I suggested that if the weightings in your portfolio were troublesome, that is, if you thought you had too much exposure to high technology, that was not the time to sell. In hindsight, that was pretty good advice. The time to rebalance portfolios is when you can think clearly, not when the sky is falling.
The market is not back to a top and a number of our stocks are below their highs, but for the most part, our stocks are well above the lows. Getting through this period in the market was difficult. But if we can remember it clearly, perhaps next time will be a bit easier.
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