The Marshmallow experiment is famous for judging people's wiliness to defer gratification. This is an important aspect of investing in a down market. Most people want to cash in to hold onto that one Marshmallow. The few are willing to wait to get two (or more).
Patience in an era of immediacy is in short supply, but it can pay off handsomely.
The market has come under a sale recently. I believe that the stock market is likely to continue down for the short term for several reasons.
- The current quarter and likely next quarter will feel the pain of decreased earnings. With the reduction of people being "out and about", less money will be spent during this “virus” period. The result will be a temporary impact on corporate quarterly earnings. This is already being reflected in the markets. Three months from now the majority of the population will have forgotten about the virus and be focused on some other worry.
- When 401K statements come out in early April, many non-seasoned investors will become aware of the drop in their personal assets and will want to move to cash or bonds. This will force portfolio managers to liquidate holdings to meet redemptions.
So now isn't a bad time to start averaging down. It can be painful, but the question is “Can you wait for two Marshmallows?” Lots of high quality companies with good earnings, solid dividend histories, low leverage and long histories are being tossed out with the trash.
Keep your head about you! Don't let the virus take you off the deep end.
Speaking of herd behavior. The lack of toilet paper in stores while there is abundant food confuses me. Has anyone heard of input/output analysis?
Be safe and wash your hands regularly.
Be smart, be well-read and be successful.
