Apr 19th, 2008
High and Low: Keeping Perspective
I admit it; I follow the stock market. I follow it so often that not only do I check how the market did at the end of the day, I check futures from bed on my iPod touch before I get up; I check on my cell phone driving in to work; and I check from a computer at work a bunch of times before the market closes–and this is all before 10 am my time!
In general, this is a nice way to drive yourself crazy, but that’s not very far away.
Given Friday’s great market numbers, it was certainly a fine day. But perspective is important–yes, the stock market had a great day, but it’s just that: a day. We’ll have great days in the market and days that aren’t so great. Over the years, the great days outnumber and outperform the less than great days, and that’s how our portfolio builds.
Some days are quite different. Those days look horrible, even if they end better than they started. And perspective helps here as well: there are awful days in the stock market, and when they happen, they hurt, but over the years, they’ve been outnumbered and outperformed by the great ones.
The importance of perspective is to not get too high when stocks are soaring and not to get too low when the market’s dumping. Don’t panic, don’t react, and stick to your plan. I can’t recommend anyone do the close following I do–in fact, I recommend they not do it–because it’s possible it will lead people to succumb to their emotions and not follow their investment plan (it actually might be better for your mental and financial health to not look more than once every six months or so!). But whether you do this close following or not, remember that market performance is highly variable and very volatile: up one day, down the next, sometimes by large amounts. Some days are great and some are not; some years are great and some are not. But over the long run, stock market performance has been very positive and has outperformed the bond market, the real estate market, and all other investments.
Keep perspective.
[...] Cents presents High and Low: Keeping Perspective – Ryan Suenaga writes that eeping your head on straight whether the market’s soaring or [...]