So here I was, eagerly waiting for the American stock market to open on Thursday morning, expecting a big drop in the price of most stocks. It was shopping time for me!
In case you’ve been living under a rock, Donald Trump won the presidential election on Wednesday and will become the 45th President of the United States of America. He has now basically become the most powerful man in the world.
Regardless of your political views (hey, I don’t live in America, so I have no say anyway!) or whether who you voted won, I’m sure you’ll agree that a change this big is bound to cause a lot of unrest – not only in America but worldwide.
What’s one of the first things that happen when a major piece of news breaks? You got it – the stock market collapses (or at least stumbles a little). I was convinced that would be the case on Thursday since I wasn’t expecting Trump to get elected.
But then the opposite happened.
Rather than dip, the stock market reached new heights. Surprise!
No, you can’t predict the market
The first thing I’d like to say is that it’s silly to try and predict the market in the short term. Don’t bother. You’re bound to lose.
Don’t believe me? Try this little game and see if you can beat the market.
Longer term, though, I’m convinced that good companies will continue to perform well, even through wars and crises. That’s what data tells us – and being a trained engineer I can’t resist a bit of data! 😛
Here’s a link to the data in case you want to have a play yourself.
I don’t know about you, but seeing data like this makes me feel great. It makes me realise that things will happen, people will lose money and come companies will go bankrupt – but after a few decades, none of that will matter, as the stock prices will rise.
This is the best advice I can give you when it comes to the stock market:
Invest in the long term – just be patient (like, 30+ years worth of patience!) and you’re bound to win.
The second best piece of advice is not to panic at everything like most people do.
“The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett
OMG! Panic! Sell everything!
It’s always the same – there will be a change in the status quo somewhere in the world, and people will assume the worst – often spurred on by the media.
Then they’ll sell all their stocks at the worst possible time and lose a lot of money. I bet you’ve heard some stories about a friend of a friend who did this – I’ve also heard a few horror stories.
These stories should not put you off of investing!
I’ve been investing for a while now, and I’ve seen a handful of days when the world seemed likely to end – days when the media were sure that there was no way back. In the light of that type of news, we humans do what we’re hardwired to do; we panic!
Back in June this year, the United Kingdom (where I lived for 9 years) voted in a referendum to exit the European Union. You may have heard of it – the media covered it a little…
Afterward, the stock markets collapsed, of course. Did I panic and sell all my stocks in fear of further losses?
Nope. I instead took advantage of the low prices to buy more stocks! Then I sold them several weeks later and made over $2,500 of profit.
That paid for my summer holidays and then some!
Everybody loves a good sale
I don’t often invest short-term like this, but sometimes there are such great deals out there that I’m tempted!
Imagine that 50″ TV you’ve been keeping an eye on suddenly went on a -30% discount. Would that make you less likely to buy the TV?
Of course not! You’d probably even buy 2 or 3 – one for each room of the house.
Stocks are the same. When stock prices drop you’re getting the same chunk of the same company, at a lower price. Remember, the company is probably still operating as usual, making the same profits, regardless of how much its stock is worth.
We don’t know anything…and that’s OK
The fact that the market didn’t collapse on Thursday, after Trump’s election, also reinforces another great truth about the stock market.
Nobody knows what the hell is going to happen tomorrow – so just relax!
Many successful investors have arrived at this very conclusion. You cannot time the market. You cannot predict what the market is going to do in the short term, so don’t even worry about it.
This also goes for not buying a cheap stock in case it dips even further. Seize the opportunity before it passes you by, will ya!?
In a way, the market is like a moody teenager – she doesn’t know why she’s shouting at her parents, but she just is. How do you treat a teenager?
Well, I don’t know – I haven’t got any children and I can’t remember how I acted as a teen. I assume you just let them go and have a tantrum and wait for the fallout to pass, right?
Well, at least that’s the only intelligent thing to do when the stock market collapses: Buy cheap, be patient, give it time, and you’ll be alright.