Wall Street panicked this morning (August 24). Fear and hysteria were pervasive. Programmed selling followed—securities’ sales generated automatically at pre-set stock prices. Bargain hunters intervened, the onslaught stopped, and the Market recovered some losses.
The Dow Jones Industrial Average (DJIA) plummeted more than a 1000 points in the first six minutes of trading. It recovered to close down 588.47 points, or 3.6%, at 15,871.28. This was the lowest level since February 2014. The carnage was similar world wide. The Canadian S&P/TSX 60 was down 3.1%, Nikkei, Japan was off 4.4%, and Shanghai, China dropped 9.3%.
Is Wall Street out of control? What should you do with your pension and investments? Some have fallen 20%, 30%, or more in the past week! If you do not manage these funds, take a deep breath. You are paying someone 2-3% to deal with this challenge. That person, like you, has no idea of the future. God alone knows. However, it’s likely she is experienced and has been through this before. By God’s grace, she will do her best with available knowledge. Still, review your goals with her and ensure she understands them.
Wall Street Affected by Fear
If you are handling these funds directly, take a deep breath, too. This is part of the investment process. Markets rise. Markets fall. If you have not examined your investment goals and individual investments in the last month, do so now. The world has been changing rapidly, particularly with China’s economy slowing and oil prices falling.
It’s important to understand that fundamentals of individual businesses have not changed. The sell-off flows mainly from fear of what “might” happen in China, and with oil prices.
Wall Street Ups and Downs Should Not lead Action
Wall Street ups and downs should not lead our investment decisions. Focus on basics. Here is what I did with my portfolio. First, I reviewed and confirmed my investment goals. Next, for each stock I own, I answered these questions:
- Was the business valued reasonably before the onslaught?
- Do I think future conditions will be different for the business so that its basic value might change?
- Do I believe the business can ride out a recession over the next two to five years without major loss of value?
- Do I think demand for the product or service will be affected greatly so that it might not keep a reasonable yearly dividend?
- Is my business’ competitive advantage at risk? Are changed market conditions giving the competition a competitive advantage?
- What’s the state of the company’s balance sheet? How much debt is it carrying? How might this change?
- What’s the state of the company’s management? Does it have a good track record?
I made no changes to my portfolio. However, I ensured I have been operating it as a steward of my Lord. If I had found changed fundamentals with structural damage, I would have acted. I would not wait for the stock’s value to recover. I do not try to time the market. Nobody knows when it will recover. God alone knows. After prayer and reflection, I might sell, and reinvest those funds elsewhere.
I suggest you reflect on these three keys to investing on Wall Street or elsewhere:
- Don’t borrow to invest. Borrowing creates extra pressure when markets fall.
- Ensure you have simple, clear, concise, written, and measurable investment goals.
- Don’t gamble and disregard business fundamentals. Investing means trying to understand each business’ intrinsic value. Ultimately this will decide the stock price.
Finally, ensure you get advice from a fee-based financial or investment advisor before you invest in the stock market. For the records, I do not sell, or represent investment companies or their products.
© 2015, Michel A. Bell
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