Just Like a YoYo

Wow, you go away for a week and the market goes nuts. Down an unprecedented 600 points the day before Christmas? Up 1,000 points the day after Christmas? What is going on?

In my opinion, the market is still unsure of where the economy is going to go in 2019, and there are a lot of scared people running out of the market right now, trying to find safety. This is forcing mutual funds to sell at a prodigious rate, often times having to sell their winners in order to generate sufficient funds. It’s almost a self-perpetuating drop, as each new drop pulls the next group after it. The overall drop was around 20% from the market high, which brought us into “bear” territory. Time to panic and sell?

The problem is, as was just demonstrated with today’s 1,000 point jump, you not only have to get out before it drops and you have to get back in before it starts going back up again! Or you can do what so many good investors do, and don’t worry about it.

Stick to your plan. Invest regularly. Dollar Cost Average. Diversify. Take advantage when folks panic and sell at bargain basement prices to pick up some deals. The mutual funds that folks have shed will be there, ready to jump back up again shortly.

In a previous posting, I talked about the P/E ratio. The P/E ratio had dropped down on Dec 24th to 18.03 – still higher than its mean of 15.73. This was back below its Jan 2014 number. Still higher than its mean though, so we could have more to go before we get back to an average market.

I still have over 18 months to go before I hit my FIRE date. The typical market downturn is 12-24 months, which is why they tell you to have 1-2 years in savings bucket, to weather that storm. So I intend to stay with the plan, and keep investing.

How about you?

Other Bloggers on the topic:

Mr. 39 Months

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