Keep Your Balance during Market Turbulence
By Paul Goodwin, Cabot analyst and Editor of Cabot China & Emerging Markets Report
From
Cabot Wealth Advisory 1/19/08
If you're an investor, you're worried. That's what you get paid for. George Gerschwin's classic song I Got Plenty of Nothin' reminds us that "Folks with plenty of plenty, all got a lock on the door," and it's true. If you have money at risk in the stock market (and never forget that money in the stock market is lways at risk), you're worried about losses, or losing your profits, or missing the next big thing. People who don't care about winning don't play (and bank savings accounts are full of them). If you're in the market, you care, no matter how much you try to keep your risk down.
The real trick is to keep yourself from getting too giddy when stocks have handed you a nice profit or too depressed when the market throws your favorite stocks into the toilet.
It's a lot like the relationship some people have with their bathroom scale. If they get up and the scale tells them they're down a few pounds, then the sun is shining and all's right with the world. But if their weight is up a couple of pounds, they can hardly face themselves in the mirror. It's tough to put a simple machine in charge of your self esteem.
But it's equally tough to let the stock market tell you how to feel, and living through a full-grown bear market like the one we're having now will put even the most seasoned investor to the test.
There is no secret to maintaining your emotional equilibrium when the bear has ripped your favorite stock(s) to shreds. You just have to be sure that you get as much capital as you can out of harm's way and safely into your piggy bank (i.e. brokerage or money market account) so that you can start investing again when the investing climate changes.
The reason our system is called capitalism is that you have to have capital to be a player. So don't let an emotional reaction to a tanking stock keep you from selling and protecting the capital you have left. Know your sell disciplines, follow them and keep doing your homework by building your watch list of interesting stocks for the next bull run.
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