The other day I was chatting with another firefighter and when we were done with department business he asked me about the stock market. He told me he is down by some amount and like most folks he is not sure what to do and he is a tad dubious about what “his guy” is telling him.

On a related note the ROI column in the WSJ Monday talked about five actively managed funds to buy for this sort of market environment. The money quote from this article was;

It’s at times like this that some actively managed funds start to gain real appeal.

Or are you really so comfortable with this market’s overall valuation that you are happy to buy an index fund and go along for the ride? If so, by all means take those routes. I prefer to sleep at night.

The flaw here, both with “his guy” and in the WSJ article is what appears to be a lack of proactive thought and execution as well as just mentally wrapping your arms around the fact that cycles end with declines and those declines make people uncomfortable.

If you have been reading this site for a while hopefully you thought about the fact that this is how the market works, even if you disagreed with me that we were headed for a bear. If you are new or did not think about the possibility of a bear hopefully you can remember what this feels like (this is harder than it sounds) so that the next one does not catch you off guard.

Unfortunately there is a dearth of MSM coverage from this angle and maybe even a lack of proactive moves made by people in the industry? I don’t know about that last one, it is just an anecdotal observation based on interviews I read and interviews I see on TV.

It would seem to me that one of the worst things any investor can do is wake up one morning and say “uh oh the market is down 20% what should I do?”

Not everyone should utilize an exit strategy or a get defensive trigger point, that falls under the investor know thyself category but anyone prone to emotion during declines needs to do some planning ahead of time. Planning either means deciding what action to take or telling yourself that your will hold on no matter what and that if you have, say, $100,000 understanding ahead of time that might shrink to $70,000 in a normal bear.

Mental preparation can go a long way to mollify the distress. This a point often repeated here but it is true and I find it very unfortunate that anyone working in the business doesn’t do more ahead of time to to avoid emotional problems that arise.

The picture is from Watson Lake here in Prescott.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009