The markets sold off this week, led by sharp declines in the tech-heavy Nasdaq. From my vantage point, the most pain has been in 
“momentum stocks”, many which were overvalued to begin with. Nonetheless, most indexes dropped a couple of percent.
This type of market action will always bring back out the “crash crowd”, talking of impending doom. As irresponsible as it seems, many analysts make a living consistently calling for crashes and various economy calamities. They are not held accountable for two reasons: 1) the media likes controversial subjects which boost ratings (see CNN’s coverage of the missing plane for further example); and 2) its virtually impossible to predict short-term market moves, so we just move on.
For typical investors, this can be confusing and scary. I can’t claim to predict what will happen this week, month, or year in the markets. Are we due for a correction? Probably. Are we headed for a crash? Unlikely. What I recommend during times like this is to take a brief inventory of my investments to make sure I’m positioned how I should be. So here’s a few tips you can use:
- Take a few minutes to make sure your asset allocations are on target. Re-balance if necessary.
- If you’re too concentrated in one stock (which is risky at any time), you might want to sell a portion.
- Move some extra cash into your investment accounts to take advantage of any buying opportunities
- Avoid financial media. Read my previous post on “ignoring the noise” for further detail.
- In times of confusion, only pay attention to those you trust. A couple of great blogs to check out when markets start acting up is Josh Brown’s The Reformed Broker, and Barry Ritholtz’s Blog. These guys can always see through Wall Street BS.
- Resist the urge to sell your core positions if the market starts dropping further. If you have a good plan in place, the best bet is to stay the course, as hard as it may be.
- Don’t buy into the hype. If a volatile market stresses you out, don’t follow it. Go outside and enjoy the day. Do something that makes you happy.
Here are a couple of links for your weekend reading pleasure on the subject:
Stop Looking for “the story” Why Markets are Falling, via Ritholtz.com
Is This the Beginning of a Crash? via thereformedbroker.com
This Stock Market Needs a Correction via marketwatch.com