Tuesday, March 18, 2008

The Demise of Western Civilization?

Well, this is it. It’s obvious now that the stock market will never come back, and that we’re dropping into a permanent recession. Unfortunately, not everyone believes this yet. You see, things can’t start improving until everyone believes that they will never improve.

It’s time to head out and buy supplies for your bunker, unless you still have some left over from when the world was going to end in the year 2000. Whatever you do, don’t say anything optimistic about the future of the economy.

Remember, it’s not what happens in a year or more that matters, it’s the anticipated carnage tomorrow that we need to focus on. How can we handle these enormous problems?

I proceed by recognizing that I don’t know how to predict when the stock market will go up or down. So, I don’t try to buy or sell in anticipation of market moves. To deal with today’s low stock prices, I have kept money I’ll need in the short term out of stocks. Now, I’ll hunker down and hope that things get better in a few years.

This approach is much more boring than selling stocks at low prices in a panic, missing the big rebound in stock prices, and buying back in at higher prices. But I’ll stick with the boring method of just waiting out market declines.

I’m not a fan of using leverage (borrowing money to invest), but it is curious that your odds of succeeding with leverage are much better now than they were when market prices were higher and climbing. This is true even though investor enthusiasm for leverage was probably much higher when stocks were more expensive.

Stock market declines are inevitable. Everyone needs a realistic plan for dealing with them. If you can’t stay calm, then there may be something wrong with your plan.

1 comment:

  1. Remember to go buy as much bottled water as possible and toilet paper, very important to have enough toilet paper at armagaedon. Be polite with your cashier at Loblaws too, when you are purchasing 30 cases of water too, you never know who's daughter she might be.

    --C8j

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