The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
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Not For The Weak of Heart

Yesterday was the eighth time the Dow Jones Industrial Average (DJIA) dropped 600 points or more.  How soon we forget!  The last time was in 2016 when the Brits voted for Brexit.  Most of the drops were in the 2008/9 global financial crisis.

I hope it drops another two thousand points!

Stock market corrections of 10% or so are actually good for the market.  A correction flushes out the timid and leaves stock in stronger hands.  Pundits have been noting, since the crisis, that the market has good upside, because there has been so much cash on the sidelines.  Warren Buffett has often said investors only know two emotions — fear and greed.  During the 2008/9 crisis, many investors pulled out of the market when it was down and missed one of the strongest rallies in history.  They only made the stock market fall even more.  Fear cost them a fortune.

As the stock market rallied and rallied last year and as the President lauded the market more and more, greed took hold of those investors, and they stormed back into the market, driving it higher and higher.  Yes, the economy was growing nicely, and corporate earnings were growing nicely.  Good news and good predictions lured those formally-fearful investors back into the stock market.  Greed will cost them another fortune.

The stock market is healthier when timid investors stay out.  So, the market drops another two thousand points?  You will have lost the last six months of growth, so what!  Paraphrasing Warren Buffett, I have no idea when the stock market will be next month, but I do know where it will be in five years . . . UP!

Stay calm and say good-bye to the timid!