How to panic wisely

Jeffrey Carter, an independent trader for several decades and former member of the CME Board of Directors -- that's a derivatives marketplace  -- offers some advice on investing in the post-downgrade market:

First, don’t call your broker when the market opens. He won’t know anymore than you. If you get through, they will parrot talking points given to them by their research department prepared last night. 

Second, don’t sell. That’s what the pros want you to do, panic. The end of the world isn’t near, although we are going to continue to go through some really rough patches. If you are looking at your retirement wilt away, don’t worry. Someday it will come back. I have seen my retirement funds get clocked several times, I am 49 and don’t plan on hanging it up for a minimum of 15 years anyway. 

Third, a lot of the selling today will come from funds that have to sell to raise cash for margin. They have to put up cash to hold positions-only way to raise it is sell. 

Fourth, this is not a stock picker’s paradise. If we have learned anything over the past two years is that no one single person can beat the market. You are much better off in a no load fund that replicates the S&P 500. It’s called the Efficient Market Hypothesis. Eugene Fama proposed it in 1962 at the University of Chicago, and there is enough research to prove it over the years. If you are inclined, sell any individual stocks you have, or focused funds you have tomorrow morning and roll them into a no load fund that replicates the S&P. Virtually every major mutual fund company has one. Your accounts value then won’t be beholden to a stock-but simply the broader market. Over time it tends to return 12%. 

Fifth, if you are out of work and panicked, I empathize with you. Take cash you have and bet on yourself. Start a business. Get any job. It will keep your mind off the ups and downs of the market and if you start generating some cash it will make you feel a lot better. 

Sixth, hold your elected officials feet to the fire. Write letters. There is only one way out of this mess. Cutting spending, and growing the economy. Too much spending and debt got us into this mess, less spending and growth can help get us out of it. Treasury Secretary Tim Geithner is a schmuck. He is a career bureaucrat and there is nothing we can do to get him out of there until November of 2012. To add insult to injury we will owe him a pension. The President is incommunicado since last Thursday. He is not deft when it comes to economics. He can get shown the door in November of 2012 too.