A Time to Face Our Investing Fears

Every time it looks like a real stock market rally is about to happen, the indexes end up right back down where they started (or lower).

Panic and doomsday scenarios are all over the newspapers and TV talk shows.

And when you look at a longer-term chart of U.S. stocks, it’s clear that we’ve already had a “lost decade” of zero returns.

So the big question on everyone’s mind is whether another ten years of stock weakness is yet ahead. I’m getting calls and e-mails from plenty of friends and family … including people who never pay attention to the economy or their retirement portfolios.

Collectively, they wonder whether this is the time to just sell everything. Whether this is “the big one.” Whether the bursting credit bubble spells the end for the United States as we know it.

I don’t try to sugarcoat my responses. In fact, I start off by confirming what they already know — namely, that things look rather grim for both stocks and the global economy.

I go on to say that we very well could see another decade of poor stock returns. Our nation has to pay the piper for many years of easy money and unbridled consumption.

But I also tell them that this is precisely the time to be optimistic. History has demonstrated — time and again — that the best time to buy stocks is when everyone else is selling.

A few weeks ago, I told you what Warren Buffett says — that we should be greedy when others are fearful. And right after I mentioned that quote, he reiterated it during an Op-Ed piece for The New York Times. (In case you missed it, the upshot was that Warren is moving his personal account from Treasuries to U.S. stocks.)

Still, I Recognize That It’s Hard to Act
When Fear Is the Dominant Emotion

All those great Wall Street aphorisms are so easy to say, aren’t they? “Buy low, sell high.” Sure, piece of cake. Until you try doing it, of course.

My most vivid memory of being scared into inaction came seven years ago.

It was September 17, 2001, and I was returning to my downtown Manhattan office for the first opening bell of the New York Stock Exchange since the September 11 attacks.

Just six days earlier, I fled from the basement of the World Trade Center after the first plane struck. I heard the second plane hit as I hurried past the corner of Broad and Wall. I stood in awe as the first tower collapsed right before my eyes.

Now, here I was back in the heart of the financial district, walking past shards of a building … showing my driver’s license to an MP holding a machine gun … and sitting in front of my computer wearing a dust mask.

As expected, the market opened sharply lower that day. And throughout the ensuing meltdown, I kept getting ready to allocate a big amount of money to stocks. I absolutely knew in my heart it was the perfect time to buy with both fists. But I couldn’t do it.

In the back of my mind was a singular thought, What if last week was just the opening salvo?

Today, amid this financial crisis, the threats are different, but the fears are eerily similar. We wonder if more pain is headed our way.

It’s enough to induce “ostrich syndrome,” where all you want to do is bury your head in the sand … just get away from it all … move everything into cash … never think about stocks again.

If your head is buried in the sand, you can’t see the good stuff that’s ahead, only darkness.

But when you act like that, you can’t see down the line. All you see is darkness.

I can’t help looking at this current maelstrom as one last great opportunity to buy the S&P 500 well under 1,000, to make up for that day on September 17 when I watched the ticker tape and sat there on my hands.

Sure, there’s probably plenty of time to take advantage of these prices. They may even get more attractive before all is said and done. But one thing that I learned from experience is that you can’t let fear freeze you in your tracks. You’ve got to keep looking ahead and planning for better days.

Never forget these two basic facts:

First, many of the market’s major advances have come swiftly, and without warning. And they almost always anticipate economic recovery.

Second, an all-cash portfolio will almost certainly underperform over any substantial length of time.

To be clear, I do not think now is the time to go “all in” on stocks or take unnecessary risks. The volatility is still a bit too high.

But I do think you should stick to your investment plan … continue contributing to your retirement accounts … and diversify into some core income stocks if you haven’t already done so.

Best wishes,

Nilus

P.S. I want to make sure you’re totally prepared for what’s coming in 2009 and beyond. That’s why I want to send you a special Gala Annual Forecast Issue of Dividend Superstars. Click here for all the details.

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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.

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