thevicenarian.com

Advocating Panic

Posted by T.W. Hanson - Feb 29th, 2008 at 23:02

I am going to differ from my colleague on an important point: the benefits of panic related to the stock market. I believe emotional reactions to the stock market spur reflection and analysis, positives for the market. One of the worst things for the market is ignorant, apathetic stoicism. Evaluate what you own and why you own it.

Trying to time the market on a daily, hourly or tick by tick basis is clearly not advised.

Twice every month, money is taken out of my paycheck through a 401k program. My management of this consists of periodically evaluating the portfolio allocation between sectors, geographies and other characteristics. However, this gets to my point, I am reviewing and understanding where my assets are and what they are doing.

In my personal account, I take a more active role. On an almost daily basis, I look at what I own. If I cannot justify its place in my portfolio, I get rid of it. Past data show that equities outperform almost all other classes of securities in the long run. However, past performance is no guarantee of future success. Tell former employees of Enron who had invested in their company that stocks go up in the long run and see what reaction you get.

A healthy dose of panic and the rational reflection that follow can be a very good thing.