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ON MONDAY, OCT. 19, 1987, stocks plunged more than 20%. I was relatively new to investing—and the crash shocked me. I realize now that, when you’re starting out, no matter how much you study, the trait you’re most lacking is perspective.
When I began investing, I approached a successful investor and asked for tips to learn about the market. Part of his advice was to watch Wall Street Week with Louis Rukeyser on PBS. That Friday in 1987, Lou started the show with a monologue explaining that the world was not coming to an end. Over the next few weeks, bolstered by his words, I added to my stock funds.
Prior to 1987, I had been scared out of some of my stock funds by normal market fluctuations, not realizing that drops in price were often the best time to buy more. Over the years, I learned that dollar-cost averaging and rebalancing help take the emotion out of investing.
Looking back, I see that this was all part of a normal learning curve. As a new investor, you can gain perspective by talking to trusted mentors, listening to experts and reading up on market history. But there’s no substitute for actually living through multiple up and down markets, and learning from your own successes and failures.
This highlights the value of starting to invest in early adulthood. A strategy of dollar-cost averaging into index funds may sound dull to your 20-something self. At that juncture, you might believe you can beat the market averages by picking stocks or timing the market. But as is often the case, the negative sting of lousy results will be your most valuable feedback. The good news: The earlier you get through your period of trial and error—and develop some perspective—the more time you’ll have left to achieve the success that comes with sensible, long-term investing.
Very wise points you make. We all commit investing errors early in our careers, and it’s best to do so young with little at stake.
Another way I’ve heard the age issue addressed is “invest early and often”.
But also 1987. I was in college, and I remember how I yearned to throw money into the post flash-crash market, but everything I had was going to tuition and rent. For a young person, a crash is an opportunity to buy (and for us older folks also to some degree, but it’s more nuanced). I’m sure it was a frightening time, though, for mature investors.
Louis Rukeyser also helped me learn a lot early on. During my 20s (in the 80s) I didn’t go out on Friday evenings without first watching WSW. My friends thought I was a nerd but I didn’t care. I loved it.