The best reaction for investors to what is happening in the stock market today is no reaction.
Traders and speculators should feel free to panic. People who own cryptocurrency should feel free to panic. If you define your wealth by your market position on a day-to-day basis, panic away.
But investors? No.
The underlying strength of the American economy is obvious. Moore’s Law runs in every direction, from clouds to chips to software to systems. Entrepreneurs are constantly finding ways to turn these resources into savings, into value worth buying and owning. America has never been stronger.
There is a problem in the technology space. There’s garbage technology that doesn’t provide value and doesn’t save anyone money. Now that money is worth money, and savers have caught a break, you don’t have to pay as much for technology’s value as you once did. But the value is still there.
As the Federal Reserve removes the punchbowl that fueled the pandemic market, valuations have declined. The sale of loans bought to get us through the last two years depresses prices, by creating competition for cash. This is more important than the raising of interest rates because it means there’s less money floating around to buy things than there was.
The world economy is also in the crapper. The markets we dominate can’t afford our stuff. The dollar is too strong for the world’s good. We can afford to take on some inflation and moderate that. Right now, everyone assumes we won’t.
But all these short-term problems don’t change the economic outlook. American technology drives the world economy. As our policymakers recognize that, policies will moderate. European and other allied policymakers can help us. We need to coordinate.
The most important point is this. Investors should never buy stocks. You buy companies. If the companies whose stock you buy provide value, if they cut costs for customers, if they’re at all well run, you’re going to make money. Times like this represent an opportunity, although I know that’s hard to see when you’ve got garbage in your portfolio that’s now worthless, which you need to sell to buy something better. But that’s what you should be doing.
If you own individual stocks, look at every company and ask whether they’re providing value, whether their business model makes sense, whether you can see them making sense five years from now. Sell what doesn’t and buy what does. Take your time and grow rich carefully. That’s what investors do.
