On the cover of the Hitchhiker's Guide to the Galaxy by Douglas Adams are the words, "Don't Panic." That's generally very good advice.
My father, who was born in 1932, was raised on a small farm in Ohio. His father was a farmer, and had been trained as a steam engineer. During the Great Depression, my grandfather was able to hold on to his farm and helped make ends meet by working as a prison guard. My father went on to have a career in the U.S. Air Force (twenty-eight years) and spent another twenty years after that working as an assistant athletic director for a small university in Ohio.
My father was also very good at investing his money and started buying stocks in the 1960s. He managed to be very successful (and my mom is continuing to manage those investments just as wisely). How would my father react to the drop in the market the last couple of trading sessions?
He would be calmly sitting in his living room chair watching CNBC just as he did every day—and he’d continue plowing any dividends he got at the end of the fiscal year back into the same companies he already owned. And then he might purchase a few more shares of stock. “It’s always a good idea to buy when prices are down,” he told me. “The smart rich people don’t look at market drops as a time to panic; they look at them as a great opportunity.”
One thing my dad recognized and always taught me was that investing in the stock market was for the long haul. Why? Because the stock market, long term, always goes up. But if you try to make a lot of money fast, if you pop in and out as the market swings, then you’re most likely to lose everything. He always thought day traders were insane.
In the years since he began investing in the 1960s he watched the market go up, and he watched it crash on more than one occasion. He grew up during the Depression and so he knew what it was like when things were bad. And he also learned, over the many years of his life, that optimism was always the way to bet. The stock market has always ended up way above where it was after every crash. It sometimes took many years to get there, but my dad was a patient man.
When the market is down, don’t panic. When it is up, don’t gloat. And definitely don’t sell it all. Tomorrow it may go down, and some day after, sooner or later, it will go up even more.
He was careful to diversify and he tended to mostly put his money in companies of the things he bought. “Buy stock in utilities,” he told me. “Then the electric company’s dividends will pay your electric bill for you.” So he also bought stock in his favorite soda company.