The markets sold off this week, led by sharp declines in the tech-heavy Nasdaq. From my vantage point, the most pain has been in “momentum stocks”, many which were overvalued to begin with. Nonetheless, most indexes dropped a couple of percent.
This type of market action will always bring back out the “crash crowd”, talking of impending doom. As irresponsible as it seems, many analysts make a living consistently calling for crashes and various economy calamities. They are not held accountable for two reasons: 1) the media likes controversial subjects which boost ratings (see CNN’s coverage of the missing plane for further example); and 2) its virtually impossible to predict short-term market moves, so we just move on. Flipping houses can also be a type of investment.
For typical investors, this can be confusing and scary. I can’t claim to predict what will happen this week, month, or year in the markets. Are we due for a correction? Probably. Are we headed for a crash? Unlikely. What I recommend during times like this is to take a brief inventory of my investments to make sure I’m positioned how I should be. So here’s a few tips you can use:
- Take a few minutes to make sure your asset allocations are on target. Re-balance if necessary.
- If you’re too concentrated in one stock (which is risky at any time), you might want to sell a portion.
- Move some extra cash into your investment accounts to take advantage of any buying opportunities
- Avoid financial media. Read my previous post on “ignoring the noise” for further detail.
- In times of confusion, only pay attention to those you trust. A couple of great blogs to check out when markets start acting up is Josh Brown’s The Reformed Broker. These guys can always see through Wall Street BS.
- Resist the urge to sell your core positions if the market starts dropping further. If you have a good plan in place, the best bet is to stay the course, as hard as it may be.
- Don’t buy into the hype. If a volatile market stresses you out, don’t follow it. Go outside and enjoy the day. Do something that makes you happy.