In light of the recent volatile market action, it’s time to visit a personal finance saying of “Elevator down, stairs up” that we are hearing more and more. So in this posting, let’s explore the meaning of this saying, see if we can apply this to personal finance?
So what exactly is “Elevator down, stairs up” and what does it mean? Well in simple terms, it relates to the way the market reacts during periods of instability and the typical way it drops and raises back up. Alternately, it can be used to describe an investing philosophy as well. Let’s explore these further.
Market Instability – Elevator Down
So if we relate the saying to market characteristics, we can see the similarities between the past couple of days, on Monday, July 19 the stock market as a whole, took a major drop down (almost like an elevator falling?) and people started panic selling.
According to financial news headlines – It was our first sizable drop in 2021 ~ 2% across the various markets.
Investors are getting spooked by the rising numbers of Covid-19 cases as the Delta variant spreads across the globe.The Dow fell about 725 points Monday, a drop of 2.1%. The S&P 500 ended the day down 1.6% and the Nasdaq was 1.1% lower. This was the worst day for the Dow since a 943-point drop in late October, and it was the biggest decline this year. – Source CNN – https://www.cnn.com/2021/07/19/investing/dow-stock-market-today/index.html
The Dow dropped 725.81 points, or 2.1%, to 33,962.04 in a broad-based rout that sent all 30 members lower. At one point during the session, the Dow was down 946 points before recovering some ground into the close. The S&P 500 fell 1.6% to 4,258.49. Energy, financials and industrials were the worst-performing sectors. The tech-dominated Nasdaq Composite slid 1.1% to 14,274.98, posting its fifth-straight day of losses and worst losing streak since October. – Source CNBC – https://www.cnbc.com/2021/07/18/stock-market-futures-open-to-close-news.html
The Wrong Thing to Do
Panic selling is typically the reason that people do not see the corresponding market returns even compared to the broader indexes; they panic on days like July 19, 2021 and sell when they see the market dropping very quickly. This is summarized by this handy chart, showing the gap between those that held through bad times and those that sold off and potentially rebought at higher levels.
Instead of panicking when the market is dropping, it’s best to remember the saying “elevator down, stairs up” – The first part of the saying is captured during the precipitous drops in the market – Remember fear drives action downwards, small steps upwards are almost unnoticed in the short term.
What can you do?
- Keep your fears in check – Remember the only people that get hurt on a roller coaster are those who jump off mid ride!
- Ensure your portfolio is well diversified – See here for our thoughts on this; this should smooth out the bumpy ride.
- If possible, hold and buy more – Use the additional power of sinking asset values to purchase more investments for the same investment dollar – See option 3 above.
- Do Nothing – Sometimes the hardest move is going to be to do nothing at all – Wait out the storm and hold on.
What is Stairs Up?
Like the analogy of elevator down, most people fear stairs and the work involved through taking them. Also, people want quick solutions, easy money – Waiting for slow growth and taking the stairs method is the mentally tough road to personal finance growth.
We can liken this elevator/stairs model to a childhood story of the tortoise and the hare. Despite large setbacks (elevator), there is a natural progression of growth over long periods of time built into the market framework (stairs).
The Tortoise meanwhile kept going slowly but steadily, and, after a time, passed the place where the Hare was sleeping. But the Hare slept on very peacefully; and when at last he did wake up, the Tortoise was near the goal. The Hare now ran his swiftest, but he could not overtake the Tortoise in time.
Long Term Market Trends
Another consideration we must take into account is the long term trends for market, so if we see a large drop, what has typically happened in the past and can we learn from it?
See our previous posting of What’s next for the Stock Market – How do you react? – Personal Finance Experiment and/or look at the chart below to see how a large dip (elevator down) becomes insignificant compared to the large (stairs up) periods of market growth.
Moreover, as JL Collins, one of the most popular personal finance writers of our time states – The market always goes up – Stocks — Part II: The Market Always Goes Up | JLCollinsnh
So now that we have laid out this simple saying, we hope the you will use “elevator down, stairs up” the next time you see a large market drop. Hopefully this will help you make some rational decisions when it comes to your investments and allow you to see the broader trend of the market – to the right and up over long periods of time. 😎
Be the tortoise when it comes to investing – Stay constant, invest regularly and keep moving forward.
Until we chat again, thanks for reading.
The Lab Manager
- Please Visit our other Popular Posts
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- Investment Losses – Do you need a market “shock absorber”?
- What’s next for the Stock Market – How do you react?
- 2020 Market Chaos – Hold tight and help others.
- Protecting Your Investments – Introduction to Risk
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