What The F is Going On In The Stock Market - What To Do When The Stock Market Declines

 

Have you ever been told not to do something?

As humans we feel an innate sense of curiosity. If we are told to not watch something we automatically want to watch it, and if it’s that we should not go over there we just have to go.

We then start to freak out. We knew what was going to happen, but that didn’t stop us.

We are a curious breed.

However, making life changing decisions rarely happens in those situations.

I mean, really, how often are we told not to watch some horror movie and then we watch it and freak out? While that might happen more often than not, do we then walk away saying we are quitting our job because of the movie due to it being a “life calling” to solve horror mysteries? Rarely.

That’s a life altering decision, but it’s not one we tend to make in these types of situations.

We may promise ourselves that we are going to be better people because of the experience or that we will do one thing or another, but these aren’t necessarily life changing decisions.

Unfortunately, this is what’s happening in the stock markets these days, with people making life changing decisions while freaking out over something that they were told to ignore.

It’s hard to keep people from getting the curiosity bug because the buzz is getting louder as to what’s happening with the stock market.

As more people find out about the market not doing well they begin to freak out. Then they are making life changing decisions and ones that are truly detrimental to their future instead of listening to expert advice.

For those that don’t know, the markets have fallen for a couple of weeks now. Before you panic, though, let’s take a look at what this means, and what you should do with your investments before making any rash decisions.

 

The down low

Let's break down what is happening with the stock market right now in a way that everyone can understand.

Like a sports team dynasty, the markets can’t go higher forever. The “dynasty” has been going on for nearly three years and last year investors won the Super Bowl, College Football National Championship, World Series and the Stanley Cup.

We are coming back to reality this year. Markets have had to deal with a lot of outside risks. Russia and Ukraine are fighting causing people concern about stability in that region.

Israel and Hamas aren’t acting very nice which has led to increased hostility in the Middle East region. Students have taken to the streets in Hong Kong to promote pro-democracy initiatives. Oil prices have fallen. We now have a minor issue (but huge headlines) with Ebola in the US.

The markets’ back just gave out.

Markets get exhausted just like any of us. As you pile on negative headline on top of negative headline, it weighs on markets.

It’s like Tom Brady losing all his receivers and offensive line. It’s hard for him to carry the team too far on his own.

However, as is the case in any sport or any aspect of life, things can’t go sour forever. That has always been the case for markets, even during some of the worst times.

Right now, though, the markets are trying to find themselves. They have lost their receiving core and some o-lineman. It’s going to take some time to get the backups up to par.

 

300 points today is drastically different than it was yesterday

I laugh every time I read the headlines which say, “Dow drops 300 points.”

It gets me every time.

That seems like a lot. 300!?!?

Yeah, it sounds like a lot, but rarely do we ever read a headline that says, “Dow gains 300 points.” The reason is because bad news sells, not good news.

Don’t fall into this trap! The market is up 10,000+ points since the bottom of the market in March 2009.

This headline scared us back in 2009 and 2010, but it shouldn’t today.

The reason they shouldn’t scare us is because during the crisis there was an eight day period where the markets lost over 2,000 points. Then to break the streak we got a 900 point gain. Wahoo! At that point that was an 11+% gain for one day!

However, if we were to get a 900 point gain today, it would only be a 5.6% gain.

What am I trying to say? The markets have risen, so the impact of the number of points we fall or gain is less impactful than it was.

Let’s try it this way. If your salary is $50,000 and someone gives you another $50,000 you are going to be stoked out of your mind! However, if you make $1,000,000 a year and someone gives you $50,000 you will hopefully still be stoked, but likely not out of your mind.

Right now the markets are reacting to the point changes as if they were making “$50,000,” but they are really making “$1,000,000.”

 

This isn’t helping… I’m still freaking out!

Alright, alright! Take a deep a breath.

Here is something that may help you calm yourself.

cat

 

Pictures of cats always help!

But really, if you are freaking out just stop and take a deep breath! The world isn’t coming to an end and the markets will recover.

Here are a few statements to remember when navigating the markets:

When you start freaking out because of stuff going on in the stock markets, just stop and go look at pictures of cats on Buzzfeed.

Don’t touch your investments during moments of freaking out… especially if it has to do with the stock market.

When you start thinking that you are Warren Buffett with regards to investing and you can’t do anything wrong… start selling some things that have gained a lot.

When a guy on the street gives you a stock tip, be sure you go home or to your office and begin selling investments in your portfolio that have done really well…. And definitely don’t buy that stock he just told you about.

When you think you have figured out the stock market, come back to reality.

Gamble in Vegas, not New York

Investing isn’t about making the right stock pick. It’s really about keeping our emotions from getting in the way.

All we hear about in the news is this guy or that guy making a great stock pick, but that’s a rarity.

It’s the same with the lottery. We only hear about the people that win. We don’t get a news update daily on the number of people that have lost or that person who has never won.

That’s boring. Yawn.

The reason that we invest is to earn more on our money than we would by letting it sit in cash. It also allows us to reach our goals more quickly than we could by just putting our extra cash flow into a savings account every month.

If you want to try to make a quick buck go to Vegas. It’s more fun. Don’t go to the stock market.

When you go to the stock market expect it to be like getting married. You are in it for the long haul, but along the way you will have ups and downs. Overall, though, it will be a net positive for you.

 

Investing is about your mind, not your heart

The mind is always the thing that gets in the way. A lot of people forget how powerful their minds are, whether positive or negative.

When it comes to investing we must be sure to control the mind from acting as a huge negative. Emotions run high when we start to see volatility in the markets, and we must control that or we will be impacting our financial future.

The stock market can sometimes seems backwards because it is really exhilarating to make money and we want exhilarating moments all the time. However, while the stock market tends to be associated with making money, the less excitement we have with the stock market the more money we make.  The key to success tends to be trying to make the stock market less exciting… thus less exhilarating.

People think the markets are exhilarating, but the markets shouldn’t be if you are succeeding within them. Boring tends to prove to be the best option when dealing with markets.

If you don’t take anything away from this piece, please just take this last piece of advice.

Making changes to an investment strategy should occur when things are going really well. It should be at that time when you don’t want to touch a thing in the portfolio because it just keeps going higher.

The time to hold steady and do nothing is when s**t is hitting the fan. This is when you are scared and freaking out. That’s when you need to stay away, wait for it to return to good times and then make the change.

They say the markets aren’t for the weak hearted, but really the markets aren’t for the weak minded. It’s the mind that determines investing success… not your heart.