A post by fellow Canadian blogger Million Dollar Journey titled RBS Predicts A Global Market Crash, got me thinking...
Let's say you had $100,000 portfolio invested in the stock market and you woke up tomorrow morning and S&P futures were down 300 points. Food and fuel costs were out of control, inflation could not be tamed, the housing crisis was worse every day, Bank of America announced another $15 Billion write down, China's GDP growth slowed to 2%. There is blood on Bay, Wall, Main, and several other streets including Dufferin and Wellington.
Later on in the day you see that the DJIA, TSX, and S&P 500 were all down about 40%! That's right, you didn't read that wrong, 40%. By the end of the day the value of your $100,000 portfolio had shrunk to $55,876!
What would you do? Could you stomach this? It's easy to sit back and believe in the virtues of buying when everyone else is selling, but could you really do it in the heat of the moment? Does it matter how old you are and what your time horizon is? Do you really not need the money? If you did need the money anytime soon should it have been invested in this fashion?
Personally I would like to think that I would be licking my lips and planning my next moves as I watch dividend growers like Procter & Gamble (PG), Toronto Dominion Bank (TD), and Johnson & Johnson (JNJ) drop to multi year and decade lows. Envisioning myself in this scenario right now I would be a big buyer for the days, weeks, and months to come after the crash. That being said, I'm 29 years old and I've been investing seriously for less than 5 years. I've never lived through anything even close to this type of event. There is always a chance that I could be frightened, afraid of losing my job, afraid of losing my capital, and downright pessimistic about the short, medium, and long-term future of the economy and of the market. As an investor, I believe you should always be ready for this type of event, if 'ready' means only ready in your mind.
I do believe that I am truly ready. I have the economic lifestyle, discipline, and mindset to be a buyer when fear rules the day maybe more than at any other time in the history of the stock market. Call it persistence, call it discipline, call it stupid, but knowing what I know and departing on the path that I've departed on, I feel that it's not just the only choice, but the best choice. How could you handle it?