“Welcome to an era of diminished expectations and continuing dangers; a world where policymakers must steer between the imminent threat of deflation while countering investors’ (reasonable) fears that swelling public debts and massive monetary easing could eventually lead to high inflation; an uncharted world where government borrowing reaches a scale not seen since the second world war, when capital controls ensured that savings stayed at home.”
“How to cope with these dangers? Certainly not by clutching at scraps of better news. That risks leading to less action right now. Warding off deflation, for instance, will demand more unconventional steps from more central banks for longer than many now seem to foresee. Laggards, such as the European Central Bank, do themselves and the world no favours by holding back. Nor should governments immediately seek to take back the fiscal stimulus. Prolonged economic weakness does far greater damage to public finances than temporary fiscal activism. Remember how Japan snuffed out its recovery in the 1990s by rushing to raise taxes.”—The Economist, April 23, 2009
Usually, we wait several years, if not decades, before posting a cover, but this week’s Economist highlights an issue we need to address head on, and one I discussed last week.
Market down, feel bad, want to sell.
Plan on getting back in.
Things clear up. I am feeling better. Want to buy back in. Market is UP!
That is a PLAN to sell low and BUY high.
There might be good reasons to sell (even with the market down), but this is not one of them!
To take it one step further, what if you buy back in (20 – 30% higher than you sold) and the light you saw at the end of the tunnel turns out to be a train?
Then what?
The Economist makes a solid case for recognizing that despite the good news, we’re not guaranteed a lack of bad news in the future. We can’t make decisions based on these glimmers. Instead, we need to act based on the plan we’ve put in place, making adjustments as needed (e.g., re-balancing your portfolio) versus reacting based on emotion (e.g., buying high, selling low).
UPDATE: Forgot to mention that I saw this at Infectious Greed a few days ago and later this morning at Boing Boing. Thanks for the inspiration guys.
