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The Dow Plunges 531 points and I Momentarily Turn Into Mr Burns

Friday’s headlines were filled with news of the beating the stock market was taking. Examples of the headlines: “sell-off turns nasty,” “Dow plunges amid China and Greece worries,” “Dow plunges as Apple nears bear market” and so on.

The reasons for the sell-off were all over the map, but three things everyone agreed with:

  1. The Dow plunged 531 points on Friday.

  2. It was the biggest one-day loss since 2008.

  3. It was the fourth consecutive day of losses for the stock market.

Once upon a time I would have wrung my hands in fear and apprehension, but on Friday, as the headlines started trickling in early in the afternoon, I was mentally tapping my fingers together with glee and saying “excellent” like Mr. Burns on the Simpsons.

Why was I gleeful instead of fearful and apprehensive? Because my strategy is to select solid companies and investments based on performance, and not on recent news, popularity, or stock price alone. Barring a catastrophic change in the business model of these investments, there is no need for me to fret when I read headlines proclaiming “Dow plunges” and in fact, there is every reason for me to get excited because I can buy more shares at a lower price.

A decline in the stock market also means there may be an opportunity for me to own investments that I am monitoring. I have written previously that hypothetical portfolios are a great way to monitor and learn about investments that pique your interest. A decline in the stock market provides a wonderful opportunity to reevaluate those investments and determine which ones are a good buy.

Does a decline mean all investments are on sale and up for grabs? No. Read my blog post on differentiating good sales from bad sales.

Parting Thoughts

Hetty Green was the richest woman in America when she died in 1916. During her life she was known as a shrewd and famously frugal businesswoman, leading to the unfair nickname “The Witch of Wall Street.” According to numerous accounts of her life, during financial crisis, Hetty Green did the opposite of what others were doing. When others were running away from the market – real estate or stock market – she would buy in. Once everyone was buying again, she would sell. Combining frugality with shrewd investing, she turned a $5 million inheritance into $100 million. (Don’t be turned off by her inheritance. Imagine turning $5,000 into $100,000!).

Warren Buffet said “Be fearful when others are greedy. Be greedy when others are fearful.”

If you have an investing strategy based on selecting solid investments that are appropriate for your risk profile and timeline, a stock market decline can be a wonderful thing.

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