When the market has a day, such as what was experienced today, don’t let it get you too rattled. Unless you are convinced there is a significant macroeconomic shift in the winds, we’re still in the midst of a very slow economic recovery. The fear that was burnt into the hearts of many from last decade’s recession is continuing to heal.
In economic terms, “fear” and “hurt” translates into pent up demand. Eventually the demand released; it’s not something that can be easily extinguished. Take for instance a vehicle. In your mind your vehicle will last you X years. If you come across hard times you’re likely to extend that projection a couple extra years to cope with the fiscal reality you face. The demand for a new vehicle still exists, even though the ability to purchase a new vehicle may not be present at the moment.
Form 2008-2012 the world was initiated by negative news. Whether it was the financial and housing meltdown, Europe’s near economic collapse, Japan’s once in a lifetime tsunami, or some other catastrophic event, wave after wave was filled with news that increased anxiety and fear throughout family personal finance.
Today, in 2014 we’re still recovering economically and psychologically from our not so distant experiences. As we recover it means loosening the purchasing reigns and being more liberal with our purchasing decisions. Thus, we are seeing the pent up consumer demand slowly emerge.
The thoughts discussed above are to provide the perspective that we are not towards the tail end of an economic expansion. When the market reacts like it did today, don’t run out of your positions. Stay clam. If anything, I would look at this period as an opportunity to buy solid companies at a discount. This is another reason why keeping a list of stocks you’re interested in is important; you never know when an opportunity to buy might arise.