“It might be scary, but nobody gets hurt on a roller coaster unless they jump off.” – Dave Ramsey
“Please keep your hands and arms inside the train at all times, and enjoy the ride” the voice on the intercom announced as we rolled slowly out of the station. The train then took a sharp hairpin turn to the left and caught the lift chain. “Click-click, click-click, click-click,” we heard as we slowly ascended the lift hill.
Roller Coaster at Utah’s Lagoon theme park
I was on the uncreatively named “Roller Coaster” at Lagoon, an amusement park about 20 miles North of Salt Lake City. The Roller Coaster was built in 1921, making it the 4th oldest coaster in the country. It is not big by today’s standards, but it’s a great old-fashioned wooden roller coaster.
Sitting next to me was my 5-year-old son, Colton. He had spent all summer hoping he would be tall enough to ride the Roller Coaster, and with his spiked hair, standing on his tippy-toes, and a lenient operator he had just made it. He was delighted.
I thought back of going through the same thing with my dad about 20 years earlier, and how excited I was when I was finally tall enough to ride for the first time. I don’t remember a lot about my first Roller Coaster ride but I survived and have loved roller coasters ever since.
As we neared the top of the lift hill I turned and looked at Colton. His expression was an interesting combination of anticipation, excitement, and feigned bravado. I think he was trying his best to talk himself out of being scared. As we crested the hill the train seemed to stop for just an instant before hurtling downward.
Part way down the first hill I looked at Colton again. This time his face told a much clearer story. He wore a look of sheer terror and his knuckles were already turning white from squeezing the grab-bar so tightly.
Then his mouth opened into a scream. It was not the usual incoherent scream of terror. Instead, he put words to what he was feeling as he screamed, “We’re going to Diiiiiiiiie!”
This continued throughout the ride, and I was thinking that I had made a terrible mistake by taking him on the coaster when he was so young. I felt like a horrible parent, and thought that it would probably be years before I could get him to ride again.
Then it was over and we pulled back into the station. As soon as the ride stopped Colton turned to me, and with a big grin on his face, said, “That was fun, can we do it again?”
The Stock Market Roller Coaster
The stock market has been slowly climbing the lift hill for some time now, but last week it crested the hill and started hurtling downwards. The S&P 500 dropped more than 6% over several trading days, with Wednesday and Thursday both seeing declines of greater than 2 percent. Although it made a bit of a comeback on Friday for many people it is a frightening time to be in the market.
So what should you do? The short answer is nothing. Predictably, as illustrated by this comic, the financial press overreacted to the market turbulence, and will continue to do so if the losses continue:
The drop itself, amplified by the overreaction of the press, caused people to start jumping off the fast moving train. Don’t follow them. Instead, you should do what my son did. White-knuckle the grab bar and scream if you must, but don’t even think about jumping off. It might be scary, but the safest place you can be is on the rollercoaster.
Why? Well, if history is a guide the losses will be temporary if you stay on the train, but the harm will be permanent if you jump off, as shown brilliantly by this comic by Harley Schwadron:
Warren Buffett summed it up best when he said:
“The Dow started the last century at 68 and ended at 11,497. How could you lose money during a period like that? A lot of people did because they tried to dance in and dance out.”
In other words, they tried to jump on and off of a fast-moving roller coaster, which even a 5-year-old knows is a bad idea.
While sitting tight and doing nothing is smart, most people have a hard time doing nothing, especially in a perceived crisis. So if you feel like you must do something the correct move is to buy, not sell. As Buffett also noted,
“Whether we are talking about stocks or socks, I like buying quality merchandise when it is marked down.”
Stocks just went on sale!
No one knows what the market will do next week, next month, or next year. Undoubtedly there will be more losses, but over the long haul stocks, in general, are likely to rise. Staying on the coaster, with your seatbelt fastened and holding on tight is probably your best bet.
You might be wondering what became of my son, Colton. Well, he turns 30 later this month. It’s hard to believe how time flies. This has been a big year for him. He graduated college with a degree in personal finance, passed the Certified Financial Planner test, joined the Peace Corp. and moved to the Ukraine to do economic development work.
He still loves roller coasters, and he also loves investing. And when he finds himself on a fast moving roller coaster, whether it is the physical or financial kind, he still knows that the best thing you can do is to hold on tight and not even think about jumping off.
If you can heed this simple but hard to follow advice when your investing roller coaster returns to the station years from now, after a wild ride, you will be able to say, like Colton, “That was fun, can we do it again?”
Additional Reading:
5 Simple Ways to Make Money Being Greedy When Others are Fearful
When the Market Goes Crazy, Don’t just Do Something, Stand There