So we just experienced financial Armageddon. What now? I think people should stop all this nonsensical Monday-morning quarterbacking. If you were hit, learn from your experience. Write it down as a case study for future reference and then move on. Stop reliving past failures. Doing so only succeeds in wasting priceless minutes better spent on positive, productive activities.
I suggest that you invest by these three simple rules.
Rule No. 1 – Capital preservation is paramount. It is better to lose an opportunity many times as long as you preserve your nest egg, or at least 90% of it since 10% is stop-loss provision. Never lose more than 10% on any investment. When market prices fall by 10%, sell immediately. If it bounces back, it is an exception. The probability of bouncing back is low so keep the law of averages on your side.
Expect the worst and prepare for it, and the best escape hatch is stop loss. If you have not done this in the past, do it now—especially if you've already been previously burned for not doing so.
Call me a chicken anytime, for a gambler I am not. I am an investor who calculates risks and never ventures to play even the harmless slot machines if it means losing an opportunity to reap a windfall at the risk of losing it all.
Rule No. 2 – Right minus wrong. As long as your right picks outnumber the wrong picks, with the loss from wrong picks limited to 7% to 10% via your stop-loss mechanism, you'll be fine.
Rule No. 3 – Think, not feel. Be rational, not emotional. Use an analytical brain not an impulsive heart. Be informed, always. Be calm, even cold-blooded, as you scour the marketplace, weighing your options and carrying them out without hesitation.
The financial coast is becoming clearer even as aftershocks are inevitable. Get back into the markets not gung-ho firing from all cylinders but with safe, boring, yet effective dollar-cost averaging. Pick up your wish lists over a span of six months or so and then buy during dips.
Be thankful as time has, once more, become our friend. The markets are inclined to move north rather than south after the recent debacle. Most important of all, we have learned priceless lessons firsthand from the Wall Street crisis. Future generations will only learn these lessons from history books.
Print ed: 09/09