Mistakes are the best teachers. One does not learn from success. It is desirable to learn vicariously from other people’s failures, but it gets much more firmly seared in when they are your own. Mohnish Pabrai

Some of life’s mistakes are more costly than others. One may not rear its ugly head until many years down the road, while another is capable of delivering an immediate knockout punch. Money mistakes are able to do both.

Odds are you’ve made some pretty good money decisions, and you’ve made costly mistakes as well. Nobody is immune from mistakes. None of us are smart enough, lucky enough or insightful enough to completely eliminate mistakes from our lives.

But you can take steps to improve yourself as a money steward and investor, and elevate the state of your overall financial wellness by minimizing the frequency and severity of your mistakes, learning important lessons from them and correcting course as necessary.

Panic Selling

The markets are sharply down again today, and investors are in the clutches of a selloff that started last week.

U.S. stocks declined sharply last Friday. The Dow Jones Industrial Average fell almost 228 points.

Monday was worse. The Dow declined over 1031 points.

Today is Tuesday. Still bad! At the close, the Dow was down another 879 points.

That’s 2138 points, about a 7.3% drop in the Dow, in just three trading sessions. The selling tsunami also crushed all other indices, including the S&P 500.

Sellers are getting out in droves, and apparently they’re all selling for the same reason: A growing fear that the spread of coronavirus will bring a sustained global economic decline.

Today is Tuesday. Still bad!

At the close, the Dow was down another 879 points.

Should I sell now?

Since everyone’s situation is different the answer can’t possibly be one-size-fits-all, but consider the following thought prompts.

  • Are you 30 years old or 66 and retired? These two investors will and should almost certainly have different investing objectives and tolerance for risk and will undoubtedly react differently to the short term events.
  • Do you own positions in technology or other growth stocks or are they reliable dividend generators? Both subclasses may be falling, but the dividend stocks are still offering an amount of income to reduce the sting.
  • Is your portfolio equity heavy (more than 60%) or equity light (less than 30%)? The effect of the decline on your overall portfolio will be dramatically different, based on the percentage of total stocks you hold.
  • Are your positions aged to the point that you can realize some healthy, long earned gains? Why not take them now?

There are a thousand questions you can ask, but since you and I are not sitting at the same table reviewing your personal financial plan, I won’t attempt to answer the question, “should I sell now?” 

What does the expert’s expert say?

As reported on CNBC a scant 24 hours ago, Billionaire investor Warren Buffett told investors not to buy or sell stocks during the coronavirus-induced sell-off. “The real question is: ‘Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?…you don’t buy or sell your business based on today’s headlines.”

In other words, keep your head when all about you are losing theirs, to quote Rudyard Kipling. 

Buffet added, “If it (the steep sell-off) gives you a chance to buy something you like and you can buy it even cheaper then it’s your good luck.” Buffett believes equities will outperform bonds for years to come due to low tax rates. “It is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments,” he said.

So, should you sell? Maybe.

But should you sell because you are in a panic? The answer is no.

Before you buy, hold or sell, you have to have a plan.

The trades you make must be in context with your overall goals and your personal investing paradigm, based on factors such as your relative level of wealth, your age, your tax situation, your ability to withstand long periods of decline, your appetite for risk, your level of cash on hand, and many other personal characteristics.

If you are worried about the long-term financial effects of the coronavirus threat, call a Certified Financial Planner professional or other fiduciary. Don’t wait. Do it now, before you make the wrong move for all the wrong reasons.

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