STOPA

From 1982 to 1987 the Dow went from about 775 to 2722 when it peaked in August; one of the most prolific markets of modern times. The week of October 12, 1987, the selling had begun. On Friday, October 16, the Dow closed down 4.6%; 108 points. Monday was far worse, when the day ended, the Dow was down 508 points or 22.6%. 27.2% in two days! Many of the trading rules were re-written after that day as exchanges were not equipped to handle that volume of activity.

Fast forward to today, we’ve had a very prolific market since the Great Financial Crisis in 2008. Despite COVID and the war in Ukraine and a whole host of other uncertainties which has brought us to where we are today, the markets have been very resilient and despite correcting, we remain around 32,400 on the Dow.

Imagine, with the benefit of hindsight and history, what you might have done back in 1987 if your investments went down by 27% within a few days. What would you do in that uncomfortable situation? Some people let emotion overwhelm thoughts and sold completely, to never return to the market. Some dabbled and added a few holdings and some “crazy” people went all in, buying consistently over the coming year. Those who let emotions take over likely missed twelve times their money while those who stepped back and looked at it as an opportunity built wealth and maintained purchasing power with their hard earned dollars.

Now, let’s put this into perspective, not as a prediction but an exercise in emotion. If the Dow corrected by 27% today, that would mean a drop of about 8800 points. That is three times what the entire Dow was worth in 1987; let that sink in. As uncomfortable as a correction of that magnitude could be, what would your response be? When emotions run high, remember this acronym. STOPA.

Stop, Think, Observe, Plan, Act

This acronym has proved timeless and is an emotional circuit-breaker that helps reduce the chances of doing precisely the wrong thing at exactly the wrong time. Whether you’re stuck in a snow bank in June in Calgary, or the market feels like it’s going to zero….remember STOPA.