Thursday, August 27, 1998

A Case For Panic?
by Tim "Foolcrum" Thompson ([email protected])

After returning to my home research and trading station after two weeks camping far afield of any media coverage of the unfolding presidential and global debacle of the moment, I was not terribly surprised to find the market down.

Having cut my investing teeth on The Motley Fool Investment Guide and having been in the game for a while now, I was unmoved. I admit that I did break down and made a few contrarian and hedge investments as my annual gains were pared from 128% to a mere 89% (since Jan. 1, '98). But overall I was not shaken to the roots.

I am particularly fond of value investing. However, that approach has become increasingly difficult in the recent climate of crisis investing fueled by the headline makers who have become bored of sex scandals and corruption. So, I have taken a little money off the table. "After all," I reason, "Where is the virtue in letting good profits wither and die when there is ample warning and reason to preserve those gains?" But all in all, I am in it for better or worse. Using The Motley Fool's advice, I re-evaluated my investments and asked myself: a.) Is there somewhere that my money can do better than it is doing right now? And b.) Would I buy this stock today at today's valuations and today's market conditions? And to each investment
that I had to review, the answer was either a.) "yes" and b.) "no." Away they went to be reconsidered later.

Is it time to fly off to far away markets and look for greener pastures? Is it true that by the time most of us realize the market has turned around, we will all have missed most of the recovery? Or, is the market moving faster and growing more savvy as well as liquid and becoming more able to turn on a dime with the sway of the latest public opinion or panic of the moment?

Market cycles come and go and should be watched. By the time a bear market is announced, a year's earnings could be evaporated into the ether. But panic is not the answer.

What it boils down to it going back to good old Foolish basics. Watch your investments and continue to ask yourself if they are sound and attractive. If they are not, don't be confused by some sort of moral obligation to the market and other investors that demands that you hold onto unqualified investments for the long term when they do not justify it. Don't be frightened by the fools into going out and sinking all of your money into gold and such. If we are hit by deflation rather than inflation, you could find gold down around $160 per ounce by this time next year. You would have lost more than if you just hung onto your Cash King holdings and did nothing!

In times of economic uncertainty, Foolishly diversify, watch your holdings monthly rather than quarterly or annually and don't make mad dashes at rumors. There are plenty of people who will do this and will lose just as much money as their parents did in 1973-75. The old saying holds true, "Don't try to teach a pig to sing, you will only be frustrated and the pig will hate you."

Speculation is for the fools (lowercase "f"). And anyone who tells you what the economy will do in the next year is either a fool or an analyst long in a dog or short on a star.

(By the way, I don't know exactly how the pig thing really relates, but I have wanted to include that in an article for so long I can't remember where I heard it.)

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