As usual, global stock and currency markets are in freefall after the surprise Brexit vote. Should you sell your stocks, mutual funds, and ETFs?
No. It’s too late for that. The S&P 500 futures are limit down as I write this (early Friday morning), and there’s no telling where the U.S. stock market will finally open for trading today. The time to sell, if you were worried about the possibility of a Brexit vote, was yesterday. If you sell today, you will be committing a classic amateur mistake. While it’s possible that the market could continue to fall after you sell, it’s more likely that you’ll be selling much closer to the low end of the market slide.
The smart money has already taken steps to prepare for this eventuality, and they are going to sit back and watch as the amateurs rush for the exits, selling at whatever price they can get. If you haven’t seen the movie Trading Places, I suggest that you do so now. Eddie Murphy and Dan Akroyd are the smart money, waiting patiently as the rest of the traders on the floor climb all over one another, hitting every bid that shows up. Once the panic starts to subside, Murphy and Akroyd shout “buy” and the last remaining traders gratefully dump their positions at rock-bottom prices.
Of course, that turns out to be the bottom and the smart money – as always – cleans up. It’s a parable, of course, but this is the dynamic of what’s happening in real time right now. My advice is to take a breath, step back, and watch the panic as it unfolds. There will be plenty of opportunities to sell at better prices, if you’re determined to do so. And selling into a market panic is the quintessential rookie mistake.
You may be wondering why I’m so sure that the market will bounce back. The truth is that I’m not sure. I don’t know where the market will go from here, but I’ve been through a few bear market panics in my day, and I’ve learned that the best thing to do on the first day is nothing. The selling is irrational. The market makers will not step in front of the deluge of selling and offer a reasonable bid for your shares. So let the amateurs do their collective thing, and wait for order to be restored before you hit the sell button.