Sell without Panic

7:30 AM eastern time. August 24, 2015

Stock market futures indicate Dow jones industrial average will open down another 600 points.  This in addition to the recent declines.

What should investors do in the midst of a market decline? Conventional wisdom says sit tight. Stocks always come back.

I suggest people sell some fraction of their stocks and risky assets. For example, you could sell 10% of your stock holdings two hours from now. The current futures price suggests markets will open down 3-4%. This puts the market down less than 15% from all-time highs.

What would an investor do next? Buy back the sold stock if the market makes a new high. The loss from this trade would be 10% times 15% for a total of 1.5% of the amount invested in stocks. Painful, but manageable.

The psychological value of selling today is that it unfreezes you, and prepares for more sales. The sky may be falling.


Chicken Little is Powerless Against Central Bank Money Printing

Postscript July 2016
The Dow Jones Industrial Average made a new all-time high in July of 2016, 14 months after its previous high in May of 2015. 

Chicken Little never bets against markets at new all-time highs; according, when the new high was made in July 2016, Chicken Little bought US stocks to cover a short position, and,  in addition, bought more US stocks to establish a tiny long position. 

Read July 2016 post "Chicken Little Buys US stocks.

No comments :

Post a Comment