Blood in the Streets

     Over one hundred years ago, Baron Rothschild is credited with saying that the time to buy is when blood is running in the streets. After the last three sessions in the stock market, it seems like blood (or red ink) is flowing freely. Almost every sector is being punished for having rich valuations and potential risks related to the corona virus that is spreading across the developed world. People are desperately seeking advice on what they should do with their money. My opinion is that even if this market continues to correct, the time to sell most positions has passed. Leisure and transportation stocks have been the most severely impacted and will continue to  endure pain for a long time going forward. People are cancelling vacations and business trips in record numbers. Some areas are locked-up due to quarantines, and airlines have cancelled flights to many of the impacted areas. Drug and technology companies have had supply chain disruptions because they sourced many needed materials from affected areas. At the time of this writing, the Dow Industrial Average has dropped nearly 3,000 points or about 10%. While I can't say that I expected this to happen, I have hedged my bets in this market by maintaining a portfolio of laddered CD's that are federally insured and safe and sound. This strategy protects me from ruin if the market continues it's decent and also protects my family's future if anything happens to me. Even though I am not thrilled with the yield on these products, I believe that later this year the interest rates paid by banks will go down even more. The Federal Reserve Bank will surely react to this financial crisis by lowering the fed funds rate even further to prop-up our economy. As far as this crisis being a buying opportunity, my buy list was already in place in the form of limit orders at my discount broker. Today two orders were executed at prices that I previously thought favorable. In summary, this too shall pass, just like every other crisis. Nobody knows when, but it will. It may take a long time for stocks to recover to their previous highs but for long term investors, this is a great time to buy some discounted stocks on your list.

HOW TO LOSE MONEY

     Every seasoned investor has experienced losses in their portfolio. Naturally, the object of investing is to make money but novice investors need to know how to handle the inevitable losing positions in their portfolio. The first rule is to not panic and sell just because of market gyrations that may temporarily affect a stock or whole sectors. Value investors who buy distressed securities will seldom buy at the bottom of a stock's range, therefore losses almost always occur when taking a new position. Owning stocks is not a "Buy and forget" proposition, one must stay apprised of a company's situation. Ask yourself if the reason you bought the stock is still valid. Has anything happened that could change your opinion about the company? If the market is simply not done punishing your stock you may consider adding to your position, all other things being equal. On the other hand, if after a reasonable amount of time the problems of your company start to look insurmountable, you may have to actually realize a loss. Even if that happens, all is not lost. The duds in your portfolio actually do have some value because they can be used to offset gains you have taken during the current year. Just be aware that any losses that exceed gains are limited to $3000 each year. If you have large losses, then you have to carry-over them into future years for tax purposes. Every year, I examine my losing positions to harvest offsetting losses but this year I could not force myself to sell because I still believe in all of them and there are many. I view these losers as the future of my portfolio. When I look back over the years, I have come to realize that underwater positions were not such a big mistake. The biggest mistake was not taking a chance on young struggling companies that have become the largest, most powerful companies the world has ever known.