Friday, October 10, 2008

A Conversation

Co-worker: Did you see the market today and yesterday? It's crazy.

FLG: I find it fascinating.

Co-worker: Fascinating. I'm scared out of my mind. I've sold some stock in my 401k and I am thinking about selling more. I want out of the market.

FLG: Do you know the simple rule of stock market investing?

Co-worker: No. What is it?

FLG: Buy low, sell high.

Co-worker: Oh, that rule! Of course I've heard that.

FLG: You just sold some stock.

Co-worker: Yes, and I might sell some more.

FLG: You bought high and sold low.

Co-worker: But the stocks keep on falling.

FLG: Did you buy at a price higher than you sold?

Co-worker: Yes.

FLG: Bought high, sold low.

Co-worker: But not as low as today. My account hasn't lost as much as your probably because I got out.

FLG: Perhaps, but that doesn't matter.

Co-worker: Doesn't matter?

FLG: I bought, but haven't sold. So, I haven't bought high and sold low.

Co-worker: But the market could keep falling. Who knows what will happen in the next couple of weeks? Do you know?

FLG: No, I don't know.

Co-worker: See. You should sell.

FLG: I don't know what will happen in the next couple of weeks, but I am pretty damn confident that the market will be higher in thirty or forty years from now when I need that money. So, I don't care about the next couple of weeks.

Co-worker: I saw a guy on TV the other morning saying that nobody should put any money into the stock market that they will need within the next five years. That's crazy.

FLG: No, that's normal, everyday advice. You need it in less than that you buy a CD or something. You don't put it in the stock market.

Co-worker: I didn't know that.

FLG: That's how you end up buying hi and selling low.

Co-worker: I don't want to do that.

FLG: You already did.

Co-worker: What should I do now?

FLG: Start buying.

Co-worker: I'm gonna wait 'till the market starts going up again.

FLG: I see.


Anonymous said...

There was a time in my life where I used to have a regular Friday 15 minute or so chat with a very kind old man. He was very old school. I didn't know his name but I saw how other people reacted when they saw us chatting so I knew enough to know he was a somebody. Plus everything the man wore was of the best, yet understated quality. Our little chats covered a whole range of topics...once I shared with him how,oh let's say "some acquaintances" were suffering nervous breakdowns because they had just discovered their trust funds were non-existent. You see, these "acquaintances" had suffered hugely in the '87 crash....and did exactly what your co-worker did. Then after things settled down, or ticked back up as others would describe, got back into the market and proceeded to invest in every risky venture coming down the pike to recoup -as quick as they could....ended up losing more that then they lost originally in '87...well then it was only a matter of time before all was gone and mental illness walked in to replace it. One could make the case the mental illness was there all along and just insulated by the cash but I'm not a doctor so who truly knows. Anyway, this kind old man listened to my tale and said:

"Those are not the kind of people who should be in the market. The kind of people who should be in the market are the ones who plan to be in it for 40 years or more and understand they have to ride through the ups and downs."

Then sometime later the kind old man died and I read his obit. And I was right. He was a somebody. And probably the richest man I've met in my life next to David Rockefeller and Steve Forbes. He was also one of the biggest guys in the midwest on the Stock Exchange as well as the former head of the Detroit Economic Association.

So that was a long story to tell you, you'll probably be quite rich someday because you don't lose your head.

FLG said...

It shocks me that otherwise rational people lose their minds at the thought of potential losses. I still own as many shares as I did three weeks ago. People are just willing to pay less for them today. Tomorrow people will probably be willing to pay more. Insanity I tell you.

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