The Bigger Mistake
Recently I've been encountering people who are understandably quite fed up. After all, the housing/lending debacle has likely significantly devalued the largest single asset many of them currently, or ever will, hold. Banks are failing. Gas, food, and other consumer prices are rising. Unemployment figures are up. In my home state of California, one of the states whose residents are already among the most heavily taxed, we stand a good chance of seeing our tax bills climb due to a mammoth budget shortfall.
People's investing portfolios have been bleeding red ink for a while - and yes, this includes mine too. It's enough to make some people want to throw in the towel. I've even read a few CAPS blogs in recent months in which investors have declared that they are doing exactly that.
Contrary to what you might think, I'm not going to necessarily advise you not to toss in the terricloth. I'm not even going to give you the ubiquitous, "Great companies are on sale along with everything else!" line (despite the fact that I believe it to be true). I'm not going to tell you that it's precisely the point when many investors capitulate, or throw in the towel, that marks market bottoms. (Though in a backhanded way I guess I just did both)
What I am going to say, at least for me, is, "I knew this job was dangerous when I took it."
Before I ever bought my first stock I knew that there would be rough markets, collapsing asset bubbles, recessions, or maybe even a full-blown depression along the way - yet I invested anyway. I knew I'd make some bad, even really bad investment choices along the way too - yet I invested anyway.
I invested anyway because I also knew that over the long term, despite these painful periods (and historically speaking, the current one isn't nearly as bad as many others have been - at least not so far), the long-term appreciation of stocks was my best choice for building my family's retirement nest egg.
I suppose I could throw in the towel. After all, the pain is no fun. I mean it's one thing to intellectually know there's a strong possibility, if not inevitablility, that my portfolio would suffer losses, perhaps big ones - it's another to actually feel them. I get it, I really do.
But then I imagine what my life would be like if every time I set a goal knowing that the journey would have moments of difficulty, perhaps extreme difficulty, I threw in the towel just when that difficulty I knew was coming actually came.
I know I would have never finished graduate school. It wasn't always a whole lot of fun working a full-time job 5 days a week, taking classes on the other two days, and pretty much not having a day off to myself (other than maybe Thanksgiving and Christmas) for a couple of years.
I know for sure I wouldn't be married. Talk about something one begins where one has a pretty good idea there may be some rough patches along the way!
I wouldn't be blessed with the profound joy that is our daughter, that's for sure. The process of adopting her was one of the most difficult, challenging, frustrating, and often emotionally exhausting things I have ever done.
Sure, not everyone's story is the same (thank goodness!), but for many of us I think the things in our lives that give us the greatest sense of purpose, satisfaction, and happiness are those things that we undertake knowing full well that they not only may, but will, be quite difficult - but we do them anyway.
I don't mean to equate investing with marriage, parenting, or anything else really - or that investing should be a source of happiness in our lives. What I do mean to do, however, is to suggest that when things get painful you may just want to ask yourself, "Did I know this job was dangerous when I took it?"
If the answer is "No!", by all means, grab that towel and toss it in! I mean that with the utmost sincerity. In fact, I'll even cheer you on as you do so. After all, I can't imagine encouraging anyone to stay invested in stocks who isn't doing so with the full knowledge that not only can their portfolios lose significant value at some point along the way, but almost certainly will.
If the answer, however, is "Yes", I sure hope you won't reach for that towel. Might staying invested in the current market, with all its troubles, be a mistake? You bet. But giving up on the (hopefully) long-term goal you set for yourself when you started would, in my view, likely be the much bigger one.
Russell (a.k.a. TMFEldrehad)