Bottom line – Don’t panic

BY VIRGINIA CODY

While Bill Lewis, Director of Peoples Wealth Management, watched last week’s fluctuating stock market he just shook his head and wondered at all the panic selling he was witnessing.

On Aug. 4, the Dow-Jones Industrial average – a leading stock market indicator – dropped 512 points or four percent.

On Aug. 8, it dropped 634 points or 5.5 percent.

On Aug. 10, it dropped 519 points or 4.6 percent.

They were three of the 11 worst drops in American history, and all in the same week.

But, on Aug. 9, the market rebounded with a 429 point gain, and then on Aug. 11, it rose 423 points.

Yet the Industrial Average change across one week was still a net loss of more than 750 points, not a good week by anyone’s measure.

Lewis said he is not worried.

“Panic selling is always an inappropriate response,” he said from the Tunkhannock office of People’s Neighborhood Bank.

Yet, that’s precisely what people tend to do when they see external forces at work on the market.

And that, the Montrose resident said, just causes the market to drop even further.

“People should buy low and sell high,” he said, “but when people panic, they do the opposite.”

Selling when the market is on a downslide locks in one’s losses, he explained, adding that if an investor doesn’t sell at all, there’s no real loss.

Lewis said that his job requires him to try to shape the behavior of his clients, to get them to go against their own grain and to “not do what they think they should do.”

“If you were planning to live in your house for 30 years, and found out the bottom had dropped out of the housing market and your house was suddenly worth less than it was, you wouldn’t go out and sell it,” he said.  “But a lot of people think they have to sell their stocks when the market’s down.”

To Lewis’ way of thinking, these plummeting numbers followed by record gains are merely blips on the screen.  If you look at the history of the market, there have always been gains and losses on individual days or for weeks at a time, but the trend has always been a gradual increase in value.

Lewis said he takes a “holistic” approach to investing.

That means, he said, that he tries to create an appropriate portfolio that suitable for an individual’s personal position.  A person nearing retirement is going to be less inclined to take on a lot of risk with his portfolio than a young person might.

And risk, he said, should not be confused with volatility.  Stocks have always had their ups and downs.  But that doesn’t mean the traded companies are risky.

“Companies are seeing record profits, they have record amounts of cash,” he said.

Lewis’ overall philosophy is that when you invest in the stock market, you do so as a long-term thing.  To speculate on whether a company is going to gain or lose value in a short period of time is simply gambling.

“We’ve been through it before,” he said.  The bottom line, Lewis said, is that people just shouldn’t panic when they see plummets and gains in the market.

“And stocks may be down, but there’s a lot of value out there,” he pointed out.  “There are a lot of strong companies out there.”

And, he added, just as a person would investigate the history of a car he or she wanted to buy before making the purchase, investors should take a look at the history of the stock market before jumping out of it.

The bottom line, he said, is don’t panic.