7 mistakes not to make in a crisis

Watching the market these days you can be forgiven for a case of the heebie-jeebies. I’ve got them.  You have two choices in dealing with downturns like this:  either assume it’s the end of the world and time to start buying canned beets and bullets, or accept the conventional wisdom that this is a downturn like every other downturn in economic history.  If you believe that, you believe that things are going to turn around eventually, be it six months or six years.

Great Depression
photo credit: Koshyk (traveling)

Here are 7 mistakes I’m not going to make in this crisis:

  1. Listening to pundits. I was watching a series of comments by guys working at firms that have a hand in this crisis – brokers, bankers, candlestick makers.  Remember this:  brokers win if you buy OR if you sell.  They don’t care if you gain or lose, just that you move your positions a lot.  Don’t be fooled by guys telling you it’s time to get out – they get the same commissions when you sell that they do when you buy.
  2. Stopping 401(k) contributions or withdrawing from retirement accounts. That money’s set aside, tax advantaged, and already “in there.”  I’m not a financial adviser, but I’ll tell you this – I’ve upped my 401(k) contribution rate.  That is the easiest method of averaging out purchase price on funds that I know of (other than Sharebuilder).  I’m going to keep putting money in my 401(k)’s S&P 500 index fund.  Why not?  Tax free investments in a cheap fund?  Sign me up.
  3. Doubling down on my job. You may think now is the time to concentrate on your job and cling to it like grim death.  Wrong.  Now is the time to network, expand your skills and polish your resume.  Now is the time when you have to be prepared – more than ever – to make a move to a new job or even a new career.  I’ll give you an example – I’ve been attending seminars on emerging accounting issues to increase my consulting “cred,” and at the same time I’ve been looking into the requirements for a complete career change.  I’m also making sure that I keep up my contacts, even as 50% of them are laid off.
  4. Neglecting my health. Market goes up, being healthy pays off.  Market goes down, being healthy pays off.  I’ve been neglecting my health recently.  My weight is up, fitness is down and my eating habits are terrible.  I’ve started focusing on eating raw foods during the day at work, I’ve walked to work (involuntarily, due to car troubles, but I actually like it) and I’ve realized that I ought to take advantage of health insurance while I have it.  Your health is an asset, just like an IRA or a house:  protect it.
  5. Taking on excessive risk OR being overly conservative. If you think now is the time that you can throw money in penny stocks and become the Buffet of Pennies – OR if you think it’s time to stuff euros in a sock in your closet – pull yourself together.  As I said above, if you think this is the final economic crisis in the US – the beginning of the Road Warrior years – yank everything out.  If you think you’re a lucky, lucky investor, plow your money into speculative junk equity.  If you’re STILL convinced that the broader market will recover someday, do this:  stick to the investment plan you had a month ago!
  6. Giving up on positive thinking. If you are like me, you are getting killed by negativity these days.   I work in the New York financial services sector as a consultant.  “I told you this was going to happen” is not something people want to hear from their governance consultants these days.  Me, I’m absorbing the hateful defeatist feelings at my client, one of the poster children of Bailout America – but I’m fighting it, at least for the last two days.
  7. Assuming my opinion doesn’t matter. Again and again you’re going to hear from the presidential candidates what they will do and what they will fix.  Let me tell you a secret that no presidential candidate wants you to realize:  they can’t START anything without Congress.  And a second dirty secret is this:  your Congressman/woman is assuming you will vote for them once they are incumbent.  But you know what?  Your opinion matters.  I started writing letters.  I’m going to get angry and get active.  Your opinion matters just as much as Hank Paulson’s or Barney Frank’s.  They are citizens, with one vote, just like you.

Mistakes? I’m sure I’ll make plenty.  But I am trying my best in this crisis to realize that the biggest mistake I can make is changing my core beliefs in how to behave, how to invest and how to live.  If more of us take charge of what we can control, we’ll be able to devote more of our attention to controlling our economy.

19 Replies to “7 mistakes not to make in a crisis”

  1. Wow, how inspirational, Steve! I get angry and depressed by reading economical news and how AIG execs had a party at a posh resort in SoCal…. And here I am worried about our children, our lives, my aging parents who have an awful healthcare insurance…

  2. Nice tips and I'm sure I will probably make some too in small amounts, but that's how we learn, isn't it? Either way I like the list especially health. People take their health for granted and don't realize that if you are healthy, besides the obvious health and mental benefits, you save so much money. Especially now when you should be saving money, you should not have to waste money on prescription meds, and doctor fees if you can be proactive and stay healthy.


  3. Having good health is always important. When you are feeling aches and pains, it is hard to stay positive. But when you are healthy and moving, things really do not look that bad after a good night of sleep.

  4. Tell me about it with the pundits. All you need to do is find one instance of pundits saying something ridiculous and you'll find it a lot easier to get over their supposed expertise. It's like sportscasters—some are good and some suck. Listen to one that sucks and it's all you need to realize that just because they're on TV it doesn't mean they know what they're talking about.

  5. Steve, I agree with you wholeheartedly about the real change being in Congress. I wish people were more educated about how to influence change locallly. We can dream, right?

  6. Good stuff, Steve, and I agree completely. Regarding job activities, I'm amazed at the networking opportunities out there. I just returned from a conference (which I attended largely on my own dime), giving a last-minute talk to fill in for a cancellation. I dusted off a presentation I hadn't looked at in two years, and reviewed it for about half an hour beforehand. Afterwards, I received invitations from two attendees to talk to them further about consulting assignments based on the presentation topic.

  7. I couldn't agree more with point #2. I've done the same as you and I recently doubled my contribution. If you have a company match, it's even more reason to continue contributing to your 401(k).

  8. I couldn't agree more with #2 and #7. Now is the time to be putting money in, not taking it out. Anyone taking it out can't complain about returns after they miss the run-up after this huge downturn.

    #7 is even more important. Congress didn't add anything good to pass the $700 billion bailout…they added pork. They ADDED PORK to something that might weight on us for years.

    1. they didn't add pork. they mixed in a bill full of tax extensions that was due to expire. it didn't really add more cost, and had already been considered and passed. the *real* problem is the nebulous $700 billion we just signed away. keep your eye on the ball….

  9. I definitely think this is a buying opportunity… My 401(k) is already on schedule to be maxed out for the year, although I could increase the percentage now and decrease as we get closer to the end of the year. I've also thought about starting a solo 401(k) or other self-employed retirement plan with my online earnings. Now seems to be a great time to do so.

  10. I definitely think this is a buying opportunity… My 401(k) is already on schedule to be maxed out for the year, although I could increase the percentage now and decrease as we get closer to the end of the year. I've also thought about starting a solo 401(k) or other self-employed retirement plan with my online earnings. Now seems to be a great time to do so.

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