Question:
I bought stocks at the March lows. Should I sell them? The general noise is that the market is too high. I’m in for the long haul. Am I foolish to think that way?
Ben from Smartville
Answer:
Ben, let’s answer your last question first. I can emphatically state you are not foolish to think the way you are thinking. When you look at the life of the U.S. stock markets, the average return is roughly 11% over that span. This means that for every recession and depression that has taken the market down, a greater recovery has brought the markets back to lost levels and higher. It will eventually happen this time as well.
The answer to your first question relates to the answer above. If you believe the stocks in your portfolio are strong and will get stronger in time, then go do something else and forget about them. If you think they are susceptible to falling back to your entry points, or lower, then you sell them for a profit. Draw your conclusion based on fundamentals and the general economic environment.
As to the general economic environment, be prepared for a choppy ride for some time to come. Although the economy is improving, it might well take its sweet time to recover fully. You might see your portfolio bounce up and down, but keep in mind, the economy will recover.
When the economy collapsed last fall, the fear and panic astounded me. I could not believe how so many people and institutions were willing to simply give in to the mania, sell in fear, and lose money on their portfolios. I did not, even though the stomach churning ups and downs almost made me sick. I held on, and I am now cashing in on stocks that dropped and have now returned their value.
Even though common “wisdom” is that fear and greed drive the markets, I have argued that we should never buy in greed or sell in fear. There is a third way, and that is to buy and sell in your own best interest. Greed and fear are not in your best interest. What is in your best interest is to stick to your plan, whatever that might be. In your case, you are in for the long haul, so stick to your plan.
If everybody considered their portfolios as you have done, they would act in their own best interest. We would see less mania, less fear, and less panic selling, and we would all fare better in the markets.
Trade in the day; invest in your life …
