Rampant Fear in the Market

So the Congress and the President passed the bail out bill after all. Remember my prediction? I’m goooooooooood. Naw, just kidding. I could just as well be wrong.

So after the news hit the wall, surprisingly… or not so surprisingly, the market went DOWN. What the heck? Does that even make sense?

“We really really need this bail out bill!”
“Please pass the bail out bill to save our investment!”
“Well, here you go…”
“Shit, wait! Maybe we don’t really want this. Oh shit…”
“I think we are screwed either way.”

Actually, it does. There is always one thing that drives the stock market and that contributes very much to the short-term volatility — human emotions. And the way the market has been moving lately, it shows one strong feeling that everyone has — fear. Fear of an unknown but tragic future. The analogy I will draw is… sheeps!

What we have now is a herd of sheep that is completely frightened by a thunder that they think is coming and is stampeding. They are trying to run away but there really is no where to run. Though a herder can try to stop them, which is the government tries to do with the bail out bill, it will have small immediate effect. We will have to give some time and effort for the fear to subside and the herd to calm down. During the stampede, some of the sheeps died. Some have gotten injured. The stronger ones are just fine. Those end up with wounds will take time to heal. The stronger ones will thrive. This is no different than our market and economy.

Heck, part of this strong fear could be intentionally amplified by the stronger ones for their own benefit — to be able to buy things on bargains — like big sheeps eating small sheeps. On second thought, this sounds quite atrocious, but it is how it is.

So far, I am still sticking with my strategy with buy and hold and have not sold anything out of fear. In fact, I have been putting hundreds here and there into my Vanguard funds.

Here is the way I see it.

Yes, there is a worse scenario that the market will tank for a long time. But in that case, it will still recover in the long run. No, it is not fun to watch my portfolio dives. However, I am patient and during that time, I will just worry about feeding myself and my future family. Maybe just myself, haha. I will also try to grow my capacity, which includes saving up to await opportunity. Time is on my side as I am 25.

Yep, there is the worst scenario where the U.S. market completely collapses, U.S. dollars become worthless, and I will have lost everything. Civil war or revolution of some sort may happen in the U.S. But in this case, I really have way more serious problem to deal with. Like fighting for food and water, staying alive, or getting the heck out of the country.

Now lastly, there is the not-so-bad scenario where the market will recover in a year or two or three… and runs its cycle like it has in the past. And this scenario, my friends, is what I am betting on.

Fear? Yes, I have it too. I just don’t let my emotions drive me. My awareness allows my perception and logic be the driver.

Here is how I always try to act:

  • Observe situation *simply*
  • Evaluate possible scenarios (best case, worst case, the most probable case)
  • Make decision to the best of my ability (a bet? that’s why life is a gamble)
  • Face and observe the consequence *simply*
  • Go back to step one

Originally posted 2008-10-03 14:21:54. Republished by Blog Post Promoter

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