As of September 20th, the Dow has fallen 12.7% and further erosion is a certainty. In the short time since the destruction of the World Trade Center towers and the attack on the Pentagon, investors have seen their portfolios decimated.
Certain industries, like the airlines and leisure industries, have been hit the hardest, but no sector of the market has been spared.
What should investors do? While uncertainty abounds, I am confident that the American economy will survive and, in fact, will rebound in the months to come. Selling stocks now assures that losses will be permanent. When the recovery comes, we must be in the market if we hope to regain the wealth we have lost. Remember that a loss is not a loss until we sell.
Statistics prove that market recoveries are sudden and largely unpredictable. The worse financial strategy one could adopt is to sell when the market has dropped and be “out of the market” when the recovery begins. It is the reverse of buy low, sell high.
Is there an issue of patriotism in holding? Yes. America needs a show of stability and confidence now more than anything else. Mass selling further depresses the market and promotes instability. Financial panic can only exist when investors yield to fear. And then, panic becomes a rout. The financial fabric of our nation is then weakened and our losses are magnified. Don’t sell! If patriotism is not sufficient reason, then greed should do the trick.
While it seems disrespectful to plot making money out of the debacle we are experiencing, in fact, an unprecedented buying opportunity presents itself. Though the American economy has been weakened by the terrorist bombings, it is not on the ropes. Slowly, but surely, Americans are resuming some degree of normalcy in their lives. People are returning to work and beginning to focus on the business at hand.
Perhaps the Dow was overvalued at the 11,000 level, but it is definitely undervalued at the 8,000 level. How long will it take for economic recovery to be complete? That’s anyone’s guess. However, recover it will and those who have endured will be rewarded.
The primary issue is the time period one has available before stock investments will be required for other purposes, retirement for example. If that time period is three years or more, relax. Even if retirement is planned in less than three years only a small portion of the portfolio will be needed each year for living expenses. The balance can stay fully invested and participate in the economic recovery that is sure to happen. It could come much sooner than three years.
How long will the unrest continue? America is likely to experience more acts of terrorism before the war is won. At the time this column is being written President George W. Bush has just addressed the nation and laid down nonnegotiable terms to the terrorists. It is likely that those terms will not be complied with and thus military action is imminent.
Every war is different and this one is more different than any previous war. I think we are in for a long, difficult time in our war with terror. A conflict lasting more than five and perhaps as long as 10 years would not surprise me. However, we have no choice. Continued, unanswered terrorist attacks would break the American spirit.
And, after all, America is the American spirit. It is the glue that holds us together and I have never seen the spirit stronger than it is today. We face a long and difficult time, but we will prevail. American economic and military might is unsurpassed in the world today. All that is required for victory is to unleash that might and concentrate it in the right direction. To paraphrase a Japanese officer after the Pearl Harbor attack, the terrorists have awakened a sleeping giant.
What can we do? As much as possible return to normal life. Buy stuff, go places, eat out, and travel. These are the things that will help America regain a firm footing. There is no need to lament stock market declines. Things are the way they are and we must play the hand that is dealt to us.
Most of us still have our faith, our families and our friends and, after all, those are the things that really count the most.
Thought for the Moment — As for me, I would seek God, and to God I would commit my cause. He does great things and unsearchable, marvelous things without number. He gives rain on the earth and sends waters on the fields; He sets on high those who are lowly, and those who mourn are lifted to safety.
— Job 5:8
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at firstname.lastname@example.org.
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