Joe Ponzio of Fwallstreet.com wrote an interesting post about What Should You Be Doing Now?
There have been quite a few agressive comments on his blog about it, and I felt I should add something, which can be a blog post in itself, so here it is.
When there is fear it can lead to panic. Panic causes things to go from bad to worse.
Which means that on occasion the recent bargain which you thought was a bargain slips another 30-40%-50% or even more. (I mentioned about this on my earlier post, where I suggested one takes one’s time before investing, I feel it needs a little more elaboration, so here goes.)
Having said the above, if one looks at the current crisis, it seems different compared to other crisis, as a lot of businesses and people who depend on debt are going to find the going extremely tough. Even business without debt are going to have a difficult time as people might not spend as much, and so Joe making the general report for the benefit of all, where he says it might make sense for the conventional investor to get out of the market and stay in cash and fixed income investments is justified.
I welcome even more panic which would lead to a crash that just means things will get better faster. On the other hand the solutions to this current crisis might cause a prolonged crash and will not solve things immediately (1-3 yrs). However, these steps or new ones in time will restore confidence. The question is how much time?
How much time?
Depending on where you are in terms of age, the impact of this time can be a dangerous situation for most people. Take 4 sets of differently aged people and the impact of time due to the current crisis will become obvious:
Set 1: 30-40 yrs—–Set 2: 40 – 50 yrs—–Set 3: 50 – 60 yrs—–Set 4: 60 + yrs
For each set, assuming they are investing in the markets now, below are probable impacts depending on the time this crisis lasts.
Crisis time period 10 + years (i.e market starts to revive after 10 yrs):
Set 1: They can thrive; they have a number of working/investing years left
Set 2: They can still make it, though their fortunes would be late in life.
Set 3: Slim chance
Set 4: They are fuc#$
Crisis time period 5-10 years: (Market starts reviving sometime between 5-10 yrs)
Set 1: They can thrive, they have a number of working/investing years left
Set 2: They can still make it
Set 3: Slim chance
Set 4: Very Slim chance, mostly fuc#$
Crisis time period < 5 years (market revives within 5 years), most people should be ok………
When you consider the time factor your investment perspective will change. This is the challenge which most individuals need to figure out for themselves as it will be different for different people. I gave time as a dimension to consider; another important one is how much can you afford to invest considering that time is unknown, considering your job, your family and other liabilities. You are each bound to reach different conclusions, just as each individual would value a company for investment differently. Even though you might have a huge margin of safety fear could cause that stock price to drop another 30% from the current discounted price or it might not. You need to be sure you can stomach that chance and that the company you’re investing in is a good value in both good and bad times. And ya the bad times can get real bad right now 🙂 Happy investing.