Saturday, October 11, 2008

Expect a Manic Monday

Expect a Manic Monday

“Just another manic Monday”

-Prince (The Bangles)

In A Piece of the Action, Joe Nocera’s classic history of personal finance, Joe cited a mutual fund manager who noted an interesting fact.

If you added up all the Monday’s between 1955 and 1985, the stock market dropped 1500 points. It did fine the other four days of the week.

That makes sense. People have the weekend to read the papers, talk to their neighbors and get negative and fearful. They walk in on Monday morning and sell.

It is the classic example of how emotion trumps reason.

I was in the financial business on “Black Monday” in 1987. The Dow Jones average lost 22% of its value in one day. It took people the weekend to digest the news from the week before.

Bad news kept coming in but people were slow to process it.

Like they have been in 2008.

As the first days of the economic crisis broke, I was stunned at how the average person was disconnected. The local news devoted its airtime to bank robberies and car crashes. People on the street wanted to talk about football or the weather. The problems of Wall Street had not made their way to Main Street.

Then came President Bush and Secretary Paulson’s first effort to sail a $700 billion Wall Street bailout through Congress. As the bill was debated, defeated, revised, laden with goodies and finally adopted, anger and pessimism spilled into the streets. Suddenly Wall Street was the only topic that people wanted to talk about.

The markets have dropped further and each day, and Americans have gotten more anxious.

Now they have an entire weekend to process the news. Negative thinking will turn to panicked selling.

Expect a very “manic Monday”. It would not surprise me if Monday broke records for market declines.

It also would not surprise me if Monday was the day of a great turnaround.

The market needs to hit a bottom so it can rebound.

I’m hoping that a “manic Monday” will get stocks to prices where people start buying again.

I have been deluged by calls and emails, many from people I don’t know.

Most want reassurance or guidance. But many are sitting on the sidelines, itching to buy.

They look at companies like Ford, GM or Apple (none of which I have ever owned) and wonder if there will some be bargains.

I don’t know. But it is a good time to do some research and find out.

If you have done your homework and know your investment, you know when it is at a good price or a bad price.

I’m in the structured settlement business, so my knowledge is focused on annuities and insurance companies. Although I did it earlier in my life, I have not sold stock or mutual funds in a decade. I only track stocks that I own.

People can do well when they take their time to do research. In the era of the Internet, there is a ton of information about anything you might be interested in owning.

After careful research, you may see opportunities that the panicked and pessimistic are missing. You might go in slowly (as I recommend) or go “all in”, like professional poker players do.

Investing is like playing poker. Winners and losers are decided by understanding the psychology of the people involved.

The current psychology ranges from negative to mindless panic. If you are positive and calm, you might be a big winner.

I always start my columns with a song and I was torn between Manic Monday and Rainy Days Always Get Me Down by the Carpenters.

A way to keep this Monday from getting you down is to rationally plot out your financial future Then do the research to understand your investments.

Don’t count on Wall Street to do your research for you. Its track record is pretty weak.

If you have a plan, keep your wits and don’t buy into panic, the expected downturn on “Manic Monday” might be a good day for you.

Don McNay is the author of Son of a Son of A Gambler: Winners, Losers and What to Do When You Win the Lottery. You can write to him at or read other things he has written at McNay is the founder of McNay Settlement Group in Richmond, Ky.

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