The Dow Jones Industrial Average fell almost 1,200 points. The headlines scream “Largest 1-Day Point Drop in History.” — They say “point drop,” because as a percentage, this declines isn’t even close to the worst. As the Dow increases in value, the percentage of a point becomes a smaller number.
This 1,200 points is equal to 4.6%. That’s nothing to sneeze at, but it is not anywhere near as bad on a percentage basis as the 508 point Black Monday crash, which at the time was a drop of 22%. (Could a Black Monday type crash happen again?)
Perspective is fun!
The 2018 Crash
Before we decide to panic, let’s look into our crystal ball and see what will happen in the next few days.
First, don’t expect any of the politicians who were taking credit for the stock market rising to come out and accept any blame for the market falling, even though, if one is true, the other must be true as well. The reality is that politicians are never responsible for short-term market moves, no matter how much they try and take the credit. So, this crash isn’t their fault, but the runup wasn’t to their credit either.
Second, watch for the “I told you so” crowd who have been “predicting” a crash of some sort. However, before you give out any kudos, be sure and look at just how long they have been predicting this crash. That guy on the side of the road with the sign that says, “The End Is Near,” will be right one day, but that doesn’t make you smart, unless you haven’t been out there for several years.
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Most of the “I told you so,” folks have been out here predicting gloom for a long time. If you listened to them when they actually said to get out, you would have lost more money by not participating in the market’s forward progress than you are going to lose now. Look at how much upside you lost getting out on that “expert’s” call in 2016, or even 2017.
You have a long way to go before you can thank an analyst for warning you in February 2017, and even further to go for that analyst that has been beating the warning bell since 2016.
What Now?
As always, for long-term investors with a well-diversified portfolio, the best thing you can do is tune out all of the noise over these events. If you are still investing, trust in dollar cost averaging to turn these ups and downs to your favor.
If you were investing in the shorter term, it’s time to reevaluate, but not time to panic. Remember this market has done nothing but run up, and up, and up. That nearly straight up trajectory is exactly what made so many stock market analysts nervous. A correction here is good, maybe even necessary.
Remember, this was a pretty big hit, and while it does wipe out all of 2018’s gains, that isn’t too hard considering it is only February. You still have a lot of profits on the table from 2017. Maybe it is time for shorter-term investors to lock in a few gains. If you have some investments that are now in the red, consider a sell to lock in some capital losses.
Otherwise, don’t panic. Tomorrow may bring more selling, but watch for the whole week to get an idea of whether this is a very necessary bump in the road, or the start of a rout.