What To Do Now?

The stock market is down sharply today. The world is beginning to learn of the extent of the damage in Japan combined with the explosions at the nuclear plants.

The market’s initial response to the news from Japan was rather restrained. The S&P 500 dropped 0.60% yesterday, which is far from alarming; plus the market rallied in the afternoon.

As I write this, the market is down 1.81% and we’ve been down as much as 2.72% this morning. The Nikkei dropped over 1,000 points today which is a loss of 10.55%. Since Friday, the Japanese market has lost 16.1%.

The stock jitters have clearly spread to the U.S. market. The Volatility Index (^VIX) is up 2.66 this morning to 23.79. Both oil and gold are down sharply.

Barry Ritholtz makes a good point this morning: When people ask, “how should I be investing now?” the answer is that your contingency plan should already be in place.

I’m happy say that I wouldn’t make any changes to my Buy List. They’re all good companies and it’s very, very likely that they will remain being good companies.

Investing isn’t about predicting the future. No one can do that. In fact, being a good investor means beginning with the assumption that you can’t predict the future, so what can you do? It’s always good to start with good first principles and that means investing in solid businesses.

At times like this, traders madly scramble for “plays.” Solar stocks, for example, are doing well today. I strongly advise against chasing any of these “Japan plays.” I remember that on the first day of trading after 9/11, shares of Sturm Ruger (RGR) jumped more than 10%. Why? Were we all going to buy guns to shoot the terrorists? As you might expect, it didn’t take long for RGR to give back all of its gains.

The one alarming stock we have is AFLAC (AFL) and that stock is currently down close to 10% today. So far, the company has made it clear that they haven’t suffered much damage. Until I hear more, I’ll continue to trust the company more than nervous traders.

The other news from AFLAC is that they fired comedian Gilbert Gottfried, who was the voice of the AFLAC duck, for making tasteless comments on his Twitter feed. I should add that he’s not the voice of the duck in the ads that run in Japan. Bear in mind that this is one of the best marketing campaigns in recent history. AFLAC’s name recognition has risen from 2% before the duck to 90% today.

My advice on what to do now is just sit and wait. We don’t know all the facts yet, and more importantly, we don’t know what the long-term implications will be. I know it’s painful to watch your stocks go down, but you’re just as likely to make things worse by joining the panic.

Posted by on March 15th, 2011 at 10:14 am

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