Market Plummeting! Recession! Plague!

“Markets Slammed by Oil, Dollar”

“Recession Fears Reignited”

“Investors Ratted as Slump Sinks In”

“Job Losses and Oil Surge Spread Economic Gloom”

These were four headlines on the front pages of The Wall Street Journal and the New York Times on Saturday morning, after Friday saw the Dow tumble 394.64 points. As someone trying to write about personal finance, I was all over this news, tracking it closely, minute by minute!

Well, to tell you the truth, I would have missed the whole thing if I hadn’t read the paper on Saturday morning—and whether I read the paper on a Saturday morning is a hit-and-miss proposition driven largely by our kids. I am equally or more likely to have ended up watching Go Diego Go! on a Saturday morning as get 5 minutes with The Wall Street Journal.

And I don’t watch the markets all that closely anyway, barely at all day-to-day. I don’t remember exactly what was on my plate on Friday at work, but I know that I didn’t realize the stock market was dropping precipitously through the day.

Anyway, is it time to pull all of your money out of the stock market? Should you be questioning or interrupting your monthly deductions that go into the stock market through retirement or other accounts?

Well, here’s what a selected handful of sources say about this. (The boldface/emphasis is mine.)

• Wall Street Journal (May 15, 2008): “Considering all the fear in the air, it's easy to make a classic investing mistake — like selling stocks at a low point and plowing the proceeds into cash. Forget about trying to pick the perfect time to get in or out of the market. A longer-term view will give you the strength to stay the course and even pick up battered stocks that could pay off handsomely down the road. About 98 percent of the time, buy-and-hold investors came out ahead of market timers, according to a 2001 study of more than 70 years of data.”
• BusinessWeek (Feb. 19, 2008): “The stock market is a great place to make money over the long term. It has a great record of building fortunes after decades of saving and investing. If you're a long-term investor, you don't need to care where the market is right now. Rather, you should care about where stock prices will be five years, 10 years, or more into the future.”
• CNNMoney: “Had you invested in an S&P 500 index fund in August 1997 and sat tight for 10 years, you'd have racked up an 88% return. Had you missed just the 20 best days in the market over that period, you would have had a 20% loss, according to Chicago's Altair Advisers. Moral: Stock returns come in bursts. Step out of the market, even temporarily, and you may miss the whole point of owning stocks.”
• Money (Apr. 30, 2008): “Frightful times in the stock market almost always bring out rash, stupid and dangerous ideas about how to invest money. And this downturn is no exception. [¶] For instance, a growing chorus of bears thinks that the worst is yet to come and that investors should get out of the market.”
• New York Times (Mar. 18, 2008): “But how can we position ourselves to survive — and prosper from — these turbulent times?... Don’t stray too far from the investment path you have charted. Make a few midcourse adjustments to your portfolio. Keep your eyes on the horizon in spite of the markets’ wild swings.”
• Kiplinger’s (Apr. 2008): “Defensive investing is not about moving all or nearly all of your IRA and 401(k) money to cash or bonds. That may be a wise move if you're a year or two from retirement and have accumulated enough wealth to last the rest of your lifetime…. Long-term investors should keep 60% to 70% of their investments in stocks and stock funds.”
• Larry Swedroe, Buckingham Asset Management (as reported in Money, Apr. 30, 2008): Swedroe notes “the U.S. economy has experienced 11 recessions since World War II. From the first day of those economic contractions to the last, stocks still managed to deliver average gains of 7.1% vs. 5.1% for cash. ‘Even if you could have predicted every recession with perfect foresight, you would have underperformed the market by moving your money into cash,’ he says.”
• Warren Buffett (as quoted at TheBehaviorGap): “Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.”
• Warren Buffett again (as reported in Money, May 5, 2008): “Asked what's in store for the economy, Buffett said he doesn't have a clue and doesn't care. [¶] ‘I haven't the faintest idea,’ he said. ‘We never talk about it, it never comes up in our board meetings or other discussions.”
• Warren Buffett yet again (as quoted in Fortune, Apr. 14, 2008): “[Y]ou don't want investors to think that what they read today is important in terms of their investment strategy…. Stocks are a good thing to own over time. There's only two things you can do wrong: You can buy the wrong ones, and you can buy or sell them at the wrong time. And the truth is you never need to sell them, basically.… [Y]ou shouldn't get… fearful when others get fearful.”

In addition to these more formal publications and established experts, here’s what a few selected personal-finance bloggers say.

• Free Money Finance (Jan. 18, 2008): “To summarize, if you have a long-term investment horizon (ten or more years), you should keep investing regularly no matter what the market is doing.”
• Free Money Finance (Mar. 17, 2008): “The worst thing that I could do is sell everything and try to get in when I think the market is on an upswing. No one can predict when the market will correct itself, so by sitting on the sidelines I would be taking the biggest risk of all -- the (likely) chance that I would miss much of the gains associated with an eventual movement upward.”
• The Digerati Life (May 12, 2008): “By staying invested, you avoid making costly mistakes.”
• Get Rich Slowly (May 5, 2008): “[Buffett’s advice that you should] ‘smile when you read a headline that says ‘Investors lose as market falls.’’… is sensible advice, but so easy to forget when you see the value of your investments plummeting.”

No doubt, it’d be easy to find a hundred personal-finance or investment-advice articles saying the opposite of what I’ve listed above—i.e., the market is going to crash and you should pull any money you have in the stock market out, as fast as you can. But it’s not really my point to try to resolve this for you from scratch. If you’re set on pulling out of the stock market or on the idea that you should try to time bear markets and bull markets, a few-hundred word blog post isn’t all that likely to change that.

This post is aimed more at folks who are in the stock market and know at some level they should be or want to be in the stock market but are having their resolve—and their commitment to that plan—tested by the roller coasters of the first half of 2008. For you, I hope that these quotes and links make you feel at least you are in good company and perhaps help you stay comfortable with your personal-finance plans.

Now it may make sense to consider rebalancing your stock holdings or shifting your stock holdings around defensively. And if it makes you feel better to pull some finite and small amount of your stock holdings out of the stock market—if it helps you sleep better at night—who am I to tell you to become an emotionless automaton about your money?

But my main thinking?

Stay the course. Don’t do anything rash. Stay invested in the stock market.

Related Posts:

That Nagging Feeling I’m Being Stupid — Sticking With Stocks

What To Do With Wildly Inconsistent Stock Advice, Using China as an Example

What Buffett’s Been Doing Lately—And Does Kiplinger’s Have a Man Crush?

Recession May Be Good News For Home Builder and Financial Stocks

Home Builder and Financial Stocks, Take Two