My heart goes out to the people of Japan and the devastating loss of life and property they have suffered. The repercussions of this disaster will be felt for a long time. Quite naturally, the world has been shocked by the news and the uncertainty of the extent of the damage and the lasting impact it will have on their economy. The financial markets have also reacted as you would expect as some investors panic and head for the sidelines to await the outcome.
I want to remind you that panic is not an investment strategy. At least it is not a successful one. As unique as this situation is to Japan and those affected, we have seen this before and know the outcome. The media will sensationalize the event until they move on to something else. Japan will rebuild and most likely come out of this even stronger than before. The financial markets will recover faster than anyone suspects. All those who panicked out of the market will be sitting in a money market wondering when to get back in.
Hurricane Katrina killed 1,836 people and caused $81 billion in damage. The financial markets dropped on the news and recovered within two months. The tendency is for people to only view these events for the terrible loss of life and property. The financial markets view these events for the opportunity to rebuild. The markets will quickly determine which companies will be the winners and losers in Japan’s disaster and then move higher.
Successful investing is based on a long-term plan that focuses on your lifetime goals. It’s not based on accurately predicting the outcome of the crisis of the day. We should be concerned about the people of Japan and give generously to the organizations that are providing relief. We should not try to time the ups and downs in the financial markets based on these events. Stick to your strategy.