Today’s panic sell off was based purely on emotions, not financial evaluations. Traders today are assuming that no one will eat out, buy a house, or travel ever again. The House’s decision to vote against the “bail out bill” was the cause of today’s sell off. Benjamin Graham’s quote that markets often perform more like a voting machine in the short term and a weighing machine in the long run applies here.
Let’s be clear that this bill was not a free bail out for the rich; it is a plan to provide liquidity to the US financial markets. The US Government is investing in the US Economy by loaning money to banks at relatively high interest rates. The other part of the package is to create an entity that buys up the securities that are causing the problems in this market. This buy up will basically replace the bad assets with cash. After the financial markets stabilize the government could issue the purchased securities back into the market place for a profit. If the Government does not get repaid from the loans, then they will get ownership of the company in question. In my opinion, either the US Government issues the loans or we will have more foreign investment into US Corporations.
Once the Government passes an investment package, we will recover a lot of what was lost today. These last few weeks have been very difficult to long term investors, but we must stay the course. For those of you living on your portfolio, you must remember that you are still receiving your dividend payments. Your annual income has not changed, however the portfolio value at the end of this quarter will be difficult to swallow.
Our strategy is to invest assets into the world markets for long term growth while keeping company risk and investment cost low. With over 4800 stocks in our portfolios, no one company affects our performance to a significant degree. What is required in times like these is to keep a cooler head than the market.
If you are in the accumulation phase of saving for retirement, this is a great time to add additional money to an S&P 500 index fund. Any investment now will have great results in 3 – 5 years. Hopefully sooner!
Maintain a diversified portfolio, keep your cost low and always invest for the long term.