Ben Stein And I Explain Why I Just Bought Stocks Today, Even With Stocks Down 5% In The Last Week

I had originally written a nice, long article about why the stock market downturn of the last week is nothing to worry about – and also about how, just this morning, I increased my holdings in index funds (namely, the Vanguard 500) by about 50% (it’s true!). Just as I was about to post this article, however, I happened to read Ben Stein’s article today on the same exact topic, entitled Keeping Your Cool in a Shaky Market. I’ve waxed ecstatic about Ben Stein’s writing in the past, so I thought it might be more interesting if I instead took out some interesting points from Stein’s article and added my own thoughts to it.

Don’t panic. Panicky behavior, especially panicky buying and selling, accomplishes absolutely nothing. Smart investors never buy in a rush or sell in a rush. It’s always worthwhile to think, to consider, and to do research. Only madmen and stock traders and speculators panic. Don’t do it.

Any time you do anything in a panic or without clearly thinking it out, whether it’s investment-related or not, you usually end up regretting it. If you’re thinking of selling right now, breathe in, breathe out, and think about it.

Keep plenty of cash on hand at all times. It’s very hard to think rationally about stocks if every dime you have is in stocks and if the market is falling fast. The risks of annihilation are so great at that point that panicked selling seems like a smart option … As I write this, I realize I probably should’ve had even more cash reserves. I easily have 18 months’ worth of cash, and it’s the cash I think of when I’m worried, not my endless printouts of stock.

In other words, Stein has an eighteen month emergency fund. I was happy when my emergency fund crossed the three month line. This is just another indication that an emergency fund is a key part of anyone’s financial plan, whether you’re rich or poor.

Stocks don’t always fall for a good reason.

With the exception of a few Asian stock markets that were due for a big downturn (healthy stock markets don’t jump 100% in a year, no matter what), none of the ones in the West (like the NYSE and London) have any reason to be going down other than as a panic response. There’s nothing that concretely indicates that there’s something wrong in the economy right now.

To summarize:

Have plenty of cash.
Be patient.
Never panic.
Buy when others are selling.
Diversify.
And, one last time, be patient. Do you think Warren Buffett was selling last week?

In short, I agree completely with Stein that this stock market “burp” is nothing more than an opportunity for people to get in and make some cash. It’s a number of people pulling their money out of stocks entirely because an Asian market got too high. Thus, you can take advantage of this move by buying in right now and riding that rebound.

This is exactly what I did – I bought in on the S&P 500 today, even though the S&P 500 is down almost 5% since last Monday. Why? I may have lost some money in the last week, but what I see is an opportunity to buy something at 5% off that I was comfortable having at the higher price just a week ago. To me, it’s like hitting up a sale at the grocery store: I can get something good at a discount at the moment.

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8 thoughts on “Ben Stein And I Explain Why I Just Bought Stocks Today, Even With Stocks Down 5% In The Last Week

  1. jake says:

    Lately I’ve been itching to buy stocks, specifically tech stocks like AMD. I’ve been following AMD and its at some of its lowest points. AMD is a company that wont be going out of business anytime soon so it will rebound eventually, this low has got me to really think about buying in and riding the rebound.

  2. I think it’s interesting that everyone always says to buy when others are selling, but while the Dow was enjoying new all-time highs for a couple of months, I didn’t hear everyone say “sell because others are buying.” Because you don’t hear that side of things, we are reduced to always buying.

  3. Trent says:

    Lazy Man: I think the general philosophy is to sell when you need to sell, not based on what others do.

  4. Rich Slick says:

    Rather than wait for the market to go up or down so you can buy, just learn to make money when the market is up OR down. It can be done.

  5. I thought the same thing: stocks are on sale this past week! I’m buying!

  6. plonkee says:

    I don’t know anything much about this, but since I’m in it for the long term I just buy when I can afford to buy (generally after I get paid) and then eventually I’ll sell when I need to sell.

    Hopefully, I’m not doing something hideously wrong.

  7. Sean says:

    plonkee,

    You and I are doing the same thing and thinking the same way.

  8. Jim Lippard says:

    “There’s nothing that concretely indicates that there’s something wrong in the economy right now.”

    Except for the inverted yield curve and the collapsing housing bubble. I’d say there’s an excellent chance of a U.S. recession in 2007.

    On the housing bubble front, subprime mortgage companies are going under right and left and there are lawsuits beginning to fly over massive mortgage fraud that’s been occurring unchecked for the last 3-4 years. And we haven’t yet seen the majority of recent ARMs begin to reset. Arizona’s Maricopa County (which includes metropolitan Phoenix) is seeing a surge in notices of trustee’s sales, which are a leading indicator of foreclosure activity.

    On the other hand, I do agree that this recent correction has provided some buying opportunities.

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