We had to take off a couple of days for a family event, but we’re back now. Just in time for another sickening plunge in the market. What the heck is going on? We take our eye off the ball for just a day, and boom!
First of all – stay calm. Panicking won’t make the market go back up. We love the image at left here. “Think straight.”
Take deep, calming breaths, as our brilliant daughter advises at critical moments. This yoga-style behavior, illustrated by the yin/yang symbol is also good.
Review your holdings – CEO ok? Check. Earnings ok? Check. Dividends safe? ummm. Maybe time to sell that one.
We had to go through that exercise for some new holdings a couple of weeks ago when this little (we hope!) downturn started. After we sold, we more or less gleefully watched the sinking companies sink some more and counted up how much we WEREN’T losing.
That’s a calming exercise all by itself. If you have financial software that keeps track of your “realized gains/losses,” you may find some entry points for selling now. If your own – Quicken? Excel? Checksoft? – doesn’t quite do the trick, your broker’s website might.
Charles Schwab and Scottrade have excellent analytic tools, and we assume the others, like TDAmeritrade, do as well. Now’s the time to play on their website. Then, sell.
Why sell into a downturn? Well, first, most of us (IFO included) are too greedy to sell when the market and our stocks are going up. But, second, and more rationally, you will have a smaller or even a negative capital gain, meaning lower or no federal tax on the trades.
We always have to return to the Internet to explain how long-term and short-term cap gains/losses work, but you can find many sites that describe the somewhat complex IRS rules for the calculations. Again, your broker’s website may also contain info, though the very simple ones, like Scottrade, hesitate to do anything that looks like giving tax advice!
At the end of all this analysis, though – don’t worry about it. A very wise man, IFO’s own grandfather-in-law, in fact, used to say, “Never make any financial moves for tax reasons only.”
That is VERY wise advice. He, like Donald Trump, was rich! He had weathered the Great Depression with aplomb – picking up amazingly inexpensive Blue Chip companies during the depth of the crash, eventually riding them to new, impressive highs with generous dividends.
Go ahead, now. Put on a little music. And stay calm and think Strait: