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I've spoken on and off about the possibility of a stock market crash, but it's quite different to live through one. I've also learned a lesson about how humbling and sneaky the market can be, because this was not the crash I expected, a big one day event. It was a crash that happened over a series of days. And I shouldn't even be using the past tense. The crash is still taking place.
There is no easy advice to give at this point. As with all financial moves, what you do will be based on your own risk tolerance and time horizon. There are many different theories on how to manage money, and we each need to follow the one that suits us.
I've been singed but not burned by the crash. Last weekend, I was talking to my wife about how I had a bad feeling about the market. (This was after the bailout bill passed and stocks failed to rally.) I usually don't say things like that to her, and we agreed to move some more of our money to cash on Monday. I didn't do it. Why? Well, stupidity comes to mind. But actually it was the thought that when Monday came around, with the market down 800 points, we were near capitulation and I'd be selling the bottom. In hindsight I can see that we weren't and in fact we still aren't. I can also see that I should trust my instincts, and my wife.
Every book I've read on the market has a story about a gaffe. Monday's decisions will be in my future book.
Aside from that slice of humble pie, if I'm objective about it I was merely singed by the crash rather than burned because since early 2008 the majority of my long term money has been in cash. I've held a few stocks through it all, but sold significant portions on the way down. My remaining shares are at prices I would buy, so I'm keeping them. My short term trading account has been reserved for day trading for a several weeks now, so the damage there has been minimal.
I think it's important to assess the damage to your portfolio in a time like this. Closing your eyes will do nothing to change reality. However, once you survey the landscape, there is no reason to hang onto regrets about what you could have or should have done--we all wish we would've sold everything at this time last year and gone short. Too bad. The best thing you can do is plant yourself in the present and start taking control of your portfolio today.
There are certainly some tempting prices out there. I recently bought a little ERTS and CELG, and on my radar are stocks like RIMM, RIG, and FCX. I'd post some charts, but they all look the same--like a ski slope! This is a great time to look at stocks you've always wanted--chances are they are at prices you never thought you'd see. But for now, it's porbably best to do more window shopping than buying. There are plenty of hedge funds and mutual funds that will need to sell as people pull money out of the market, and this will continue to pressure stocks. The bottom will be a process, so be patient. If you buy anything now, hedge it with a short ETF like SDS or TWM (I've done that as well).
There will be a bounce at some point, and it should be unmistakeable (a big reversal day that begins down and finishes up on heavy volume). Those with cash on that day will have some great opportunities. Longer term, anything can happen, so I'll be trading more than investing.
Finally, a word about mutual funds. If you have mutual funds in your taxable account, be aware that you may face a big tax hit as they sell shares. Mutual funds may have gains this year on stocks they bought years ago, and even though funds have been going down, you will be taxed on those gains no matter how long you've been in the fund. This happened after the tech bubble, and people got hit by a double whammy of depreciating funds and taxable gains. I don't use mutual funds at all, but if you do, consider if ETFs may be a better way to go.
Good luck out there, and remember to relax. The stock market has crashed, and we're all still here.
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