Today the Dow rose 300 points even before the Federal Reserve announced it will lower interest rates. A couple days ago stocks were falling because of a run on Bear Stearns. Without emergency Fed intervention, there may have been other runs on investment banks.
The market is volatile, and people’s portfolios are in the red. How does a portfolio manager react to these events? I reach for my Investor Anxiety Reliever pills (more accurately known as jelly beans!).
High emotions lead to bad trading decisions. Market lows occur when people, including myself, want to throw in the towel and sell everything. Instead of liquidating it would be better to buy more, but that is hard to do. Just think how many people were bullish when the Dow was at 14,000 compared to now when the Dow is 2000 points lower. It’s backwards.
This is a bear market but we finally know that the parts of the government that count (the Federal Reserve and the Treasury Department) are now engaged. The market will get through this, just like it did with the Savings & Loans crisis, but in the meantime it isn’t fun. Those who bet on worst-case outcomes will be wrong (again).
In the meantime, the market will be volatile (wow, what a bold prediction!). The more you trade the worse off you may be. So sit back, have some Investor Anxiety Pills, and look for a better second half of the year!
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