Another year, same old same old

Yesterday, we saw a worldwide sell-off caused by instability in the Italian political system. Somehow, investors were extremely worried that a repeat election in Italy, the Euro zone’s third-largest economy, may cause Italy to eventually withdraw from the European Union, just like Britain’s recent referendum to exit from the EU.

So, almost everything that’s listed on the global stock exchanges went down. A few Canadian banks had announced their quarterly results, which were better than the analysts’ estimates. But that didn’t matter, all of the Canadian banks were down, some by as much as +3% in a day (I didn’t realize this until Mr. Tako pointed out, clearly I don’t pay a lot of attention to the market, especially when I’m travelling).

It was a sea of RED!!!

The market becomes extremely irrational when there’s fear.

Since the financial crisis in 2008, there seems to be a couple of “big” crisis every year that would send the market tumbling. Some of them included…

  • Italy political system worries
  • US debt ceiling
  • Briexit
  • US & North Korea tensions
  • China & US trade treats
  • European sovereign debt crisis
  • Interest rate hike worries – does the fed raise the interest rate or not?
  • Oil price bubble
  • Iceland financial crisis
  • Irish banking crisis
  • Donald Trump tweeting something controversial

And many more.

Another year, another “major” crisis, another global sell-off.

Same old same old.

YAWN!

Why haven’t we learned anything yet?

Don’t people remember that over the long run, the stock market provides a positive return?

Why do we keep letting our emotions dictate what we do when it comes to our investments?

When the market tumbles, we feel knots in our stomachs. We are worried, we are fearful, and we can’t sleep at night.

So we sell, hide cash under our mattress, and put our heads in the sand like ostriches.

And we repeat this silly procedure a couple of times a year. Well, because it’s fun???

Or is it?

I’m sorry but that’s a completely wrong approach. Ask yourself, are you in for the long-term or the short-term?

If you are like me, you are in the market for the long-term. So take advantage of the market drops by purchasing more stocks. Take advantage of cost dollar average. Take advantage of diversification through time. 

Remember, you are in it for the long run. Stop worrying about the day-to-day price movements.

PS: I’ll keep this post short as I’m dead tired and not quite over my jet lag yet. I just thought I would write a quick post because I received multiple emails asking me whether I am going to liquidate everything in our dividend portfolio because of the Italian political crisis. Emails on this whether to sell topic seem to pop up every time a big drop in the market. Weird.

I promise that I’ll resume my regular epic LONG posts later.

 

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21 Comments

  • Reply
    Joe
    May 30, 2018 at 8:59 am

    These crises didn’t worry me when I was young and was making good money. Now that I’m older and make much less, I’m a lot more conservative. I still believe the stock market is a great investment in the long run, but I’m scared of a big 50% drop. It’ll be much harder to come out ahead because I can’t invest as much. Hence, I’m cutting back a bit on our stock allocation. I don’t mind a bit less return at this point.
    Short posts are nice occasionally. Hope you’re having a good trip.

    • Reply
      Tawcan
      May 31, 2018 at 6:24 am

      Hi Joe,

      That makes sense, especially when you are not working full time and tapping into your retirement account. A big 50% drop would be very scary for you. Having said that, you’re most likely cutting back on your stock allocation to decrease your risk.

  • Reply
    Annabella
    May 30, 2018 at 11:46 am

    hi Bob,

    nice sell-off, took advantage and stocked up on my Bank of Nova Scotia shares, next buy might be Enbridge,
    Love your blog!

    • Reply
      Tawcan
      May 31, 2018 at 6:29 am

      That’s awesome you were able to load up on some BNS shares. Enbridge price remains to be suppressed. We loaded up the last few months on Enbridge. Might consider buying some banks later.

  • Reply
    tynan
    May 30, 2018 at 12:03 pm

    Well the whole market rallied back today after the Italy “crises” yesterday. . so anybody that “sold everything” will be feeling silly one day later.

    • Reply
      Tawcan
      May 31, 2018 at 6:36 am

      Very true. Until the next crisis then ppl will freak out again. Very silly.

  • Reply
    Mrs. Picky Pincher
    May 30, 2018 at 2:46 pm

    Ugh! The fear mongering and panic, I swear. Only day traders should be concerned about these blips, although I understand that it could always be indicative of a bigger dip. You just never really know, but panic doesn’t help.

    • Reply
      Tawcan
      May 31, 2018 at 6:37 am

      Exactly. Most of us are not day traders so we shouldn’t be worrying about these blips. Panic over one bad day just doesn’t make sense. Invest for the long term.

  • Reply
    esb FI
    May 30, 2018 at 3:25 pm

    I love this article because I’m exactly like you and always have the long game in mind.

    WHO CARES about these silly, meaningless gyrations? My thinking is that stocks are on sale and it’s a great time to load up!

    • Reply
      Tawcan
      May 31, 2018 at 6:38 am

      Thanks esb FI. When you’re in the accumulation phase, market tumbles are very much welcomed. Now if you’re already in retirement and tapping into your portfolio, that’s a different story.

  • Reply
    Frankie
    May 30, 2018 at 7:57 pm

    People will drive themselves mad trying to second guess what might cause the market to have a true sell-off – amazing that none of these ‘crises’ have managed it yet.

    It will more likely be something completely out of left field that comes along and whacks the stock market – which no-one will see coming.

    In the meantime, there are far more valuable and productive things to be doing with life. Let the stock market take care of itself in the long run – which it most certainly will.

    Cheers, Frankie

    • Reply
      Tawcan
      May 31, 2018 at 6:40 am

      That’s the scary thing… when people second guess. I do wonder what would be the major crisis to start the next bear market though. The bull market has been going on for a very long time, clearly, a bear market is coming sometime in the future.

  • Reply
    Owen @ PlanEasy.ca
    May 31, 2018 at 6:40 am

    I didn’t even notice! ha!

    My wife and I are on a 4-month schedule. We only review our finances in January, May and September. We just did our “financial check-in” for May and I haven’t looked since.

    Checking your finances too often can make you sad. I did a guest post on BudgetsAreSexy a while back that explained why checking your money too often can be an emotional roller coaster. Once every few months should be fine for most people.

    Guest post for those who are interested…
    http://www.budgetsaresexy.com/checking-your-money-every-day-may-make-you-sad/

    • Reply
      May
      May 31, 2018 at 11:45 am

      As a dividend growth investor, I actually check my finance pretty often. But I focus on income, not the portfolio value. So for the last few days, I was quite happy that BMO has increased the dividend and I also got some drips for RY. I saw my forwarding dividend income grow no matter where the market goes and that’s a comforting feeling.

      Saying that, I think I am pretty cool with market going up and down for a certain range. But I am not sure what my reaction will be if the market goes down for 50%. Remember Derek Foster? He sold at the bottom of market in 2009. I didn’t have much invested during financial crisis, but this time it’s different. I now have a major part of my nest egg in the market and I am planning to retire in five years so I figure a bear market might impact me in a different way. Just hope I could hold to my investment plan and do not panic. But you never know. I dare not to be too confident with my nerve.

      • Reply
        Tawcan
        June 1, 2018 at 6:39 am

        When it comes to how often you check your account… I think that’s a personal thing and you need to find your personal balance. Having said that, checking every hour is probably not healthy. And checking only once a year or less is probably not healthy either.

  • Reply
    Accidental FIRE
    June 1, 2018 at 2:17 am

    Great post Bob. My faith in the US Stock market is unwavering. And I will gladly make that statement smack in the middle of the next downturn that is surly coming 🙂

    • Reply
      Tawcan
      June 1, 2018 at 6:44 am

      Haha, I’ll wait for that exact statement in the next downturn. 🙂

  • Reply
    Mr. Tako
    June 1, 2018 at 9:13 am

    Thanks for the mention Bob! There’s always something going on to keep people “excitable” isn’t there?

    It’s worth remembering on a given day, only a tiny portion of a stock’s total shares outstanding are traded. So even though “old hats” like us know not to sell and get excited by this regular political noise, there’s always greenhorns seeing it all for the first time.

    I’ve been keeping my eye on a couple good value Canadian banks and was just flabbergasted the market reacted the way it did. It isn’t often that the market shows its irrational colors, but we got to see it up-close and personal this week.

    • Reply
      Tawcan
      June 4, 2018 at 7:06 am

      That’s a great point Mr. Tako – only a tiny portion of a stock’s total shares outstanding are traded each day. So the majority of people know to hold for the long term.

      We would love to get more Canadian banks, although we already own quite a bit.

  • Reply
    Grizzly Bear Finance
    June 3, 2018 at 11:39 am

    You’re right on the money, Tawcan. It’s like the saying goes, “millionaires are made in times of the greatest uncertainty.” Thanks for sharing.

    • Reply
      Tawcan
      June 4, 2018 at 7:06 am

      Thanks Grizzly Bear Finance. I really like that saying, lots of truth to that.

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