Wife comment: You know red is a lucky color in Asian cultures?
September 29, 2008 – Black Monday, we had been only married for 6 months when the Dow fell 777 points. I remember coming home from work and realizing as I watched the news the past month has seen our combined retirement accounts decrease significantly. The urge to jump ship and sell everything while running to the hills and the strongest emotion – FEAR. The Dow would eventually hit bottom on 6,594.44 on March 5, 2009 – our retirement accounts would decrease by half when all was said and done.
I believe many of us could no longer bear the bleeding from a thousand cuts over those 5 months and tuned out. Our own 401k lost over 50% of its value how much worse could it get? The actions we took (some of these actions may sound familiar to some of you)?
- We sold some stock to get some cash, but left the rest in the market believing it was better to have something then watch it go to zero.
- We continued to contribute to our 401ks but not as aggressively – not maxing out.
- We turned off the news, could not bear to continue to watch the bloodletting.
- We ignored the market, focusing on local or personal issues.
- Hoarded cash in savings account.
- Employed ostrich investment strategy. Stick your head in the sand, ignore it, that lion will go away.
- Listened to all the talking heads and slick advisors, I meant, stock advisors on what to do. Some was good advice but knowing what was good vs. bad was an issue.
During this time I didn’t realize how lucky I was because there were a significant amount of Americans who would be hit with a double whammy of the stock market crash and the housing bubble caused by our titans of Wall Street and their innovative derivatives. Many families would end up losing their homes as owners or renters.
Wife comment: Hey don’t just blame the bankers! Some of it was our greed too! You almost convinced me to buy that rinky dink condo for half a million! Remember what you said? “No honey we are not in a housing bubble! This is California…they don’t go through boom and busts!” Have you heard of the saying,”California or Bust?”
Wife comment: Pretty housing bubble…so pretty. Is that a key or needle?
Mortgage-backed securities anyone? Made to order, fried, boiled or raw – all Americans were affected…whether you were a homeowner, renter, investment tycoon or mom and pop investor.
More importantly, if you were young and just entering the workforce the next ten years were going to be difficult. Potentially, the Great Recession will impact your future earnings for the rest of your life.
Now that I ruined your day and gave you bad flashbacks…
There were positive lessons we learned from this in the graduate school called The School of Hard Knocks that we all became enrolled in:
Some Lessons (to be elaborated on in future posts):
- Cut back on spending (interesting issues on this), learning about wants and needs.
- Focused on budgets, budgets, budgets…did I say BUUUUDGETS???!!!
- Alternative investments. Spreading and diversifying your income stream.
- Life insurance, safety net not investment. Looking at the market gyrations was bound to give some of us heart attacks…
- Money markets aren’t risk free. Whaaaat..you can lose money??
- Refocusing our priorities: New baby, renting vs. buying, work – keeping our jobs, re-evaluating what makes us happy…fulfilled.
- Evaluating what is the American Dream? Is telling your kid,”Pursue what you love, the money will come.” make sense?
- Your only guarantee with the stock market: The market goes through boom and bust cycles. However the average bust cycle is something you can weather if you have planned well.
- Sometimes dumb luck can make you look like a genius but who wants to depend on dumb luck?
- Understanding our FEAR, gaining perspective and how important information, experience and education vs ignorance can allay your fear, decrease bad decision making, and allow you to seize opportunities while others are running away.
Final thoughts for today. Reflect on the charts below and and chew on some tasty thought nuggets. We may be heading towards a market correction….but…so what?
Continue reading “I Can Beat the Market..or Not. What Stock Market Crash?”