Staying the Course

When the market dipped in February this year - my wife panicked and wanted us to get out of the market. She is still recovering from the 2000 dot-com crash and has limited faith in the stock market. I had a knot in my stomach too and was wondering how bad it will get. After a 5+ year bull run - you kind of get used to seeing 10-15% annual growth. Making money looks too easy until comes a correction or maybe even an extended bear market.

Two key resons why I did not sell in February.

Don't Time the Market
We all feel the urge to make trades because we have a "feeling" about the market. But the markets are notoriously fickle and timing the market is a fool's game. Even today the pundits (Fed Unsure About Economy) on wall street are split 50/50 on what is next - bull or bear. In the end what works for me is

• Follow the plan. Yes you should have a plan and well defined strategies to manage and tweak your portfolio.
  
• Dollar cost averaging gets me into regularly contributing and not worrying about the market gyrations.
  
• A well thought out portfolio and assett allocation keeps me diversified and invested in the right markets/sectors.

Act Like an Investor
Investors follow a plan, do their due diligence and ignore short term market fluctuations. Average market return is ultimately an accumulation of bull and bear markets. I have a long time horizon, a reasonable asset allocation in place and the courage to stick out the market downturns. What goes up will go down - and I cannot pack and run each time that happens.

Stick with your plan and learn the phychology of an investor. Warren Buffet is the best role model on how to be a prudent investor. Buy value, buy regularly and buy for the long term.

Eight months later my wife is happy we did not sell in February. I wonder how she will react when the next correction happens?

Other Resources
SECs Assett Allocation 101
Learning from the Harvard Yale Endowments - Seeking Alpha Blog
Warren Buffet's Shareholder Letters