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Markets react on FED so turn your computer off and walk away

PanicServer Yahoo posted several articles this morning in reaction to Mr. Market’s behavior today asking a basic question: “Is the market overreacting?”

Well, in my opinion of course it is! Have you ever seen markets reacting rationally recently? I haven’t. As much as I am involved in the stock market I understand more and more what Jesse Livermore meant when he was calling other participants “suckers”.

When I opened my account a few minutes ago, the entire account was horribly down. All holdings losing in average 2 – 3%, some even 5 – 6% in a single day! You may be asking yourself whether this drop is justified or what’s behind it. Is it the long anticipated correction, pure overreaction or is the market adjusting to the reality of the shape of the US economy after FED ends its stimulus?

You may have asked yourself what you could have done better to prevent heavy loses in your account. Well, you could buy some puts this morning if you really knew what’s going to happen. If you are like me, a regular stock market sucker (no offense here, just using Livermore’s version of a “greenhorn” or a newbie), then you probably didn’t have enough information at the right moment to react to FEDs meeting fast enough. I also do not have a big enough account to spend a lot of money on a quite expensive puts (thanks to increased volatility) to protect my tiny account.

If you have turned on TV and tuned to CNBC you may have heard talking heads recommending their clients raising cash. It is a good advice, but they meant sell stocks to raise cash. If you do that, you will slip into (day) trading the market and that is not allowed in dividend growth strategy.

Do you remember year 2008? Do you remember the panic and selling everything no matter what value the stock had? What happened next? The markets rallied and erased all loses from that year. Is this the end of world? Probably not. And if so, nothing matters anyway.

So what is the best solution to do?

Nothing!

At least do nothing today. Turn off the computer or log off from your account and do not read anything about the market and stocks. Walk away. The panic selling can force you into irrational, emotional thinking and actions. It may force you into selling (and usually this selling will happen at the bottom, so you end up buying high, selling low). Turn it off and do something else. I did it today. When I saw the opening prices this morning I turned my account off and walked away from it.

I will check my account later tonight (maybe) because I am trading on margin to make sure I do not have any margin calls issued and if not, I will be turning it off coming back to check it on Friday and coming back on Monday to make decisions what I want to do next. I will definitely prepare for more buying, but not yet. The selling may not be over.





7 responses to “Markets react on FED so turn your computer off and walk away”

  1. There’s nothing like market jitters to stir things up and get everyone excited. I also am in the mindset of do nothing. The FED is just noise. When there is a serious turn of events or concrete trend that someone can undeniably point out, then perhaps I’ll change my strategy. But until then this ship will remain on course.

    • Martin says:

      This is so true. I like your approach on this. I am not changing my course just because some talking heads have to have something to say. I am laughing when watching all the news and panic (or excitement on the other hand) and I am just thinking what those investors out there are thinking jumping in and out.

  2. Troy says:

    I bought quite a bit of stocks and gold on Friday – I figured it was panic selling – the final stage of capitulation.

  3. The sell off was crazy wasn’t it? I did….. absolutely nothing. Kind of dull. Actually I cried a bit inside because the sell off happened (as it always does) right after I finished buying a bunch of new stock this month. If things stay depressed into next month I’ll be able to grab some stocks at discounted price. So I’m optimistic for the long term.

    • Martin says:

      This is exactly what happened to me too. I bought some stocks and yesterday I could buy them even cheaper! I have some cash available, but not too much. Hopefully, the prices stay down a bit longer.

  4. CI says:

    I think the important thing here is to stick with your strategy and not panic. Continue to monitor the market, look for buys. A few down days does not mean this will be another ’08/’09. Our economy is in way better shape, especially banks. I believe this is a correction to a super heated market and not the end of the world. This is about the FED and interest rates; not about a financial crisis, housing bubble, and recession. Big difference.

    Some of my best 2012 purchases were made last summer. I remember at one point the market was down like 12 of 13 days or something like that. Opportunity!

    • Martin says:

      CI, I agree and hopefully my post reflects this. I am basically trying to say, stay calm and don’t panic. If you have a heart attack, turn off the computer and go walk. When this storm goes away there will be a lot of wrecked stocks to pick up for bargain price.

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