How to determine whether its okay to stay calm ?

I find that I have a capacity to stay calm but I come across writing that often says “Staying invested wasn’t perhaps a good idea” or “Regular investing doesn’t work always” or “Indeed, Timing is everything”. For example, another news item says “Japanese markets at a 20-year-low”. Now if something is at its 20-year-low, a person who has invested 20 years ago and opted to remain calm and stay invested in the meantime, turns out to be a fool, no ? Is something wrong here ? Would the same person, have benefited by cost averaging if he had continued to invest small amounts regularly during the same period ? It’s often said equity has the most potential for return in the long term than other forms of assets, but is there an “optimal” long term, below or above which “being a goodie goodie long term investor” doesn’t work ?

Trent, would you please book this as a Reader Mailbag question too, though I haven’t posted this as a comment in the mailbag post ?

Just
don’t
look!

Amen

Even in the article Trent cited, the first line says (paraphrased) “Its the Sunday after the largest point drop in world financial market history, and no gov’t financial authority in the world has proposed a solution. Unless something changes between now and tomorrow, we could see the Dow plummet to as low as 4700.”

A few hours later, England provided 37M in liquidity to its banks in exchange for a financial stake in the banks, just as he recommends in the article! That was a game changing policy that prevented the Dow going to 4700, just like it says in his article.

I think Jim Cramer has two roles. First, he attempts to help people understand why markets are behaving the way they are in their current state, and occasionally offering recommendations or predictions. His lightning round is more of a “if you’re going to try to trade in that sector of the market, I would buy ABC stock instead of XYZ stock” not “here are the stocks everyone should buy tomorrow.”

Second, he attempts to call attention to critical situations using his publicity as a sounding board. You’ll probably recall the “they [the fed] know nothing” outburst, but not necessarily his call for the fed to open the discount window before Bear Stearns collapsed or his plea for world financial authorities to take a stake in the companies they bail out (oh wait, that was in the article Trent cited).

He is criticized for changing his mind…but that’s because market conditions change! Think of it like gardening. The season and conditions are right to plant a tomato plant. After a while, the tomatoes grow to a reasonable size. You pick them when they are ripe. Did you change your mind about growing tomatoes? Of course not, you have merely reached the point where the tomato is finished growing, and ready to sell at Farmer Cramer’s market.

That’s what stock picking is about, and that’s what Mad Money is about. Instead of a tomato you have a stock, and instead of a farmers market you sell on the stock market. Maybe you pick your tomatoes early and get them to market before anyone else…and you can sell them for a higher price. When a lot of people are selling tomatoes, the price goes down. When your tomatoes are rotten, you didn’t pay attention to changing market conditions, and are stuck with that loss. Wouldn’t it have been a good idea to diversify your vegetable/stock holdings?

In summary, you should listen to what pundits are saying, but don’t take it as absolute…conditions change much too often and much too quickly. You’ll notice all pundits will preface their predictions by saying something to the effect of “In the market conditions that exist at this second in time, while I’m being filmed in the studio, I believe _____.” They give their insights based on specific market conditions. Some insight (like the Dow going to 4700) will be obsolete hours after it is spoken, sometimes more quickly, while other insight (like low-cost index funds dollar cost averaged and invested over many years) will be timeless.

Last week was a hell with the Greek stock Market: Every day 4-5% losses. After the announcements of European leaders, a great increase took place in Monday and in Tuesday. My husband proposed to put in market a part of our savings (we plan to buy a house): If we buy now cheap, with the current increase we will cover our losses. We discussed and we decided not to proceed.
Today the Greek stock Market closed with a loss -3.27. We are lucky people…
Adventurism with stock market is only for people that have money to throw away.

tux – http://mymoneymylife.wordpress.com

As a Christian, I find my worth in God. God never changes. Many are probably familiar with the verse Matthew 6:19-21:

19 Don’t store up treasures here on earth, where moths eat them and rust destroys them, and where thieves break in and steal. 20 Store your treasures in heaven, where moths and rust cannot destroy, and thieves do not break in and steal. 21 Wherever your treasure is, there the desires of your heart will also be.

Even if you’re not a Christian, it would still be beneficial to derive your sense of self-worth from something other than money, something lasting. Maybe your family, your children. Maybe your friends. But don’t depend on money, but as we’ve seen the past several weeks, this is not something we can depend on. If we do this, we will remain completely calm in a turbulent market, because the market doesn’t even matter anymore.

Great advice, all important points that people seem to forget when things start to get a little wonky in the financial sphere. I’m hoping that the gains on Monday will remind everyone that (a) things are unpredictable in the short run, (b) pulling your money out of the market can cause you to miss the gains when (not if) the market resumes its slow upward climb, and (c) trying to time the market and figure out how it will react is difficult even for professionals (compare Jim Cramer’s prediction to where we actually are, here on Tuesday night). Be calm, stay invested (with money you don’t need for five, or even ten years), and you will be alright.