Prior to the Great Depression drops in the market and sharp economic declines were called Panics, and that is what I think we are seeing. The uncertainty of the degree of economic impact of the virus and government response to the pandemic is causing people to panic, creating market volatility.
According to my indicators the Dow Jones and Industrials Average is oversold, but downward pressure still exists. The same can’t be said for the NASDAQ and SP500, they are not oversold, and downward pressure still exists. No one yet knows where the bottom is and we may not know this till Q2 2020 conference calls begin in April. Are we overreacting? Hard to say. With suspension of travel to affected countries and the closures of many schools and companies we will definitely see a negative impact on the economy. Are we panicking? In my opinion, yes.
So what should I do? Remember investing is mainly about mindset so:
- … DON’T PANIC …
- Understand your tolerance for risk. Risk is the degree to which your principle will be lost. Essentially my 8% sell rule means I’m willing to lose 8% of my principle. If you do not have a high tolerance for risk or a long investment timeframe you should not make any new stock purchases right now.
- Be financially prepared. This includes taking a diversified approach to investing so when stocks are down other assets are not as affected.
- Cash is king and you should always have cash available to buy stocks when the right price at the right time occurs.
Quant For The Masses 