September 29th marked at least the third ‘worst day in banking’ this year. With six or seven different ways for the average citizen to find out simultaneously that the House of Representatives turned down the so-called ‘bail-out’ and that Wall Street didn’t like that, it is easy to understand how fear could well up in such a short time. The worst thing any investor can do is to sell into a market panic, unless minimizing your portfolio is the goal.
Remaining calm when all around you is chaos is easier said than done, but there are a couple of things you can do to practice calming your nerves.
First and foremost, focus on the facts. The media is in extreme competition for your attention, and the current theory is that you’ll pay attention to extreme reporting. That means that every event is a ‘crisis,’ complete with its own title, and that the consequences are reported as earth-shattering every day. With all forms of media shouting doomsday headlines at you every minute of the day, it’s easy to forget that the US economy hasn’t even experienced contraction in GDP yet. Unemployment is at 5%, not the 25% of the Great Depression, or even 10% that we experienced in western PA in the early 1980’s. We are most assuredly in an economic slowdown nationally (probably a recession already), but it’s about time for one of those anyway, just like in 1989-1990 or 2001-2003, or any time we have five or six years of growth.
Focus on your investment objectives. Unless you are trading for short term cash growth (in which case-good luck), these tough days for the stock market will pass. If you have an account managed by a professional, your money is probably being used to buy more stock in undervalued companies that will grow that much more rapidly when recovery comes, whether that’s next quarter, next year or next decade.
Focus on the region. Construction and real estate fundamentals in western PA are better than normal. Vacany rates are declining, rents are increasing, and job creation is accelerating. We have massive investment in industrial construction that will produce manufacturing jobs. Legal and accounting firms here continue to grow as their businesses have grown beyond regional borders. Even our banks have steered clear of the poison that has affected other regional institutions. And we all know how strong the healthcare and technology sectors have become in the region.
There is daily evidence that businesses here will be cooling off their plans for construction projects. Doubtless contracting in 2009 will be slower that the past few years, unless some real clarity about the financial markets happens in the next few months. That’s OK. It won’t be fun to endure a slowdown, but the upside is that contraction is the natural response to an extended period of economic growth, and western PA has had the growth. Moreover, the next wave of growth, be it from more tech jobs, healthcare or energy, is already building to keep the downtown relatively short and shallow.