Author: Mike Holman

The markets have not done well lately….the TSX in particular has gone down from around 15,000 points down to a bit less than 10,000 points as I wrote this (one week ago).  Hopefully there will be some stunning rallies and we will all get a good laugh out of this outdated post!

I have to admit I’m handling the market drops much better than back in 2001 when I was switching out of equities – only to miss out on some of the increase which followed.  However my dog-eared copy of Four Pillars of Investing – “Stay invested in equities” – is now getting a bit drooled on since I’ve taken to sleeping with it under my pillow.  Bernstein’s wonderful book is the best way to put things in perspective – there have been much bigger drops than we have experienced and the market has always come back.  Also – it’s too late to do anything if you are still invested – just ride it out.

Another idea I’ve heard around the blogosphere is that now is a good time to buy.  While I don’t think that stocks are necessarily cheap (were internet stocks “cheap” in 2002?), the investment gods all say to buy when things look their darkest.  Problem is that it has been dark for a while – will it get worse?  Who knows?  But the markets will come back – it just might take a while.

For those of us who are fully invested or just don’t want to buy anything right now – keep in mind that not selling is the same as buying.  Not selling right now is a vote of confidence for your inability to time the market which nobody can do accurately over the long haul.

Are we there yet?  The week before last, the TSX dropped 11%, last week it dropped 16%.  Oddly enough on Friday I was expecting the worst day so far since the Asian markets had crashed about 8% and the Japanese market had dropped almost 10% overnight.  When the TSX went down 5.5% I felt oddly relieved since I was expecting more.  5.5% drop in one day and I thought that was acceptable!  Yes, this is a bear market – not one of those cute and cuddly, babyish, koala bear type of markets where maybe you lose part of a year’s gain, but rather a far more vicious, huge grizzly bear that is intent on ripping out your insides until you sell what is left of your holdings.

I haven’t had the courage to actually see how much damage has been done to our portfolios, however I know that it won’t be as bad as the actual market declines for the following reasons:

• We aren’t 100% invested in stocks – We started the year with 75% equities and 25% fixed income.  Now partway through the year I did switch some of the bonds to REITs – which have done ok, but not great.  Part of the bonds were real return bonds (known as Treasury inflation-protected securities in the US) which apparently haven’t done all that well for some reason.  Regardless, having any kind of non-equity investment in your portfolio will reduce the decline in a bad market.
• Some of the portfolio is temporarily in cash – As I discussed a few weeks ago, we are moving our accounts to RBC to take advantage of the 1% bonus offer.  Since my wife’s accounts were invested in mutual funds, they were all sold about 2 weeks ago and the transfer was done in cash.  This was done because we wanted to convert her holdings into ETFs.  I checked on the weekend and the funds that she had been holding were down about 20% in the last two weeks.  Her investments represent about 1 third of our total investments so this cash holding will really help out.  The hard part of course is pulling the trigger to buy – that might take some courage!  I’d like to say this was the result of some brilliant market timing but of course – it was sheer luck!  Of course the falling dollar isn’t helping since all the cash is in Canadian dollars but what can you do?

Note [added Monday, Oct 13] – the various markets have all gone up some astonishing amounts so it looks like we should see a rebound in the Canadian market today.

What, me worry?  Yes, of course I’m worried – it’s tough to watch the markets fall and hear about how the American credit market is seized up without wondering if we edging too close to the end of civilization as we know it.  I was quite surprised when the “Great American Bailout” vote didn’t pass on Monday although given that Bush seemed to be one of the main spokespersons in favour of the bailout, maybe I shouldn’t have been.  Couldn’t they have found someone/anyone more palatable (Palinable?) to the American public for that role?

Anyways, the markets are in turmoil and as Mr. Cheap pointed out yesterday, now is not the time to panic with your equities.  He also pointed out that maybe you shouldn’t watch the markets at all.  If you are having trouble dealing with these crazy markets then take his advice.  If you really want to worry about something then worry about something important – for most people who aren’t planning to retire anytime soon – your career is your biggest asset! As long as you have your job, then you can pay the bills, mortgage and put food on your table which is the top priority.  That’s right – your retirement savings could disappear overnight and your day to day life won’t change a bit.  Ok, if that happened you might want to do some retirement planning and maybe kick up the savings a bit but your lifestyle will only change if you want it to.  If you lose your job and can’t find something equivalent then you are screwed – it will be impossible to keep up with the same lifestyle.  In that case, you will have to cut back somewhere – either your expenses or your early retirement dreams or both.

I’m at a point where I have a half decent sized retirement account and I would probably weep uncontrollably for days if it disappeared…however, the reality is that given the choice between losing my career or losing my retirement savings – I would choose to keep the career.

Bottom line is – focus your worries on the things that are most important – your career is far more important than your retirement savings so when the markets are tanking – just enjoy your commute to work.