Dow: The secrets of successful stock investing from veteran markets reporter

If anyone understands how bear markets and plunging stock prices can upend a sense of calm and financial well-being, it’s me.

I’ve spent the past 19 years at USA TODAY reporting and writing about the unpredictable Dow Jones Industrial Average’s good and bad days. And even though the Dow was rising and in a bull market for 15 of those years, the best lessons I learned about investing – and about myself and the way my brain and psyche react to violent market swings – came when stocks were going down.

Today is my last day writing about Wall Street at USA TODAY after voluntarily accepting an early retirement package from the newspaper’s parent, Gannett.

In my final column, I'll share what I’ve learned about the market and personal finance since my first day here.

In a two-decade run as a stock market reporter, “the market” has been my friend, but also an enemy.

The thousands of stocks that I have owned through mutual funds made me and my family a lot of money. Like millions of other Americans, I’m an individual investor with 401(k), IRA and 529 savings accounts whose fortunes rise and fall with the market. But the stock market has also periodically masqueraded as a thief, occasionally draining a sizable chunk of my hard-earned investment dollars from my account balances.

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I both revere and fear the stock market. It’s a nature-like force whose movements are amplified by a mass herd mentality around the globe. The market, I’ve come to realize, is everyone, everywhere with a finger on the buy or sell button.

In good times, the market can make your financial dreams come true, like paying for college or saving enough to retire or amassing $1 million. But in bad times, it has the destructive power of a Category 5 hurricane that can test your faith in investing and make you second guess why you even invest in stocks. But I’ve learned that just as the sun reappears following the rain, winds and flooding from a big storm, so do the green arrows after a bad stretch on Wall Street.

I started on March 20, 2000, which turned out to be 10 days after the market top that signaled the end of the 1990s bull run and coming dot-com stock bust. The Nasdaq plunged nearly 4 percent on my first day.

I spent the next 19 months covering my first bear market and explaining to readers why stocks kept going down. Most of the blame was heaped on irrationally exuberant investors who had driven up fledgling and profit-starved internet stocks to sky-high valuations.

I survived that bear, which sliced the broad market’s value nearly in half. But the swoon left a lasting imprint on my psyche and taught me to respect the stock market like hockey players in the NHL who fear a lethal enforcer on the other team.

In some small way, I feel like my byline is part of Wall Street history.

And why not? I covered the two biggest market downturns since the Great Depression – the 2000-02 bear market following the internet stock implosion and the nearly 57 percent drubbing the market suffered in 2007-09 after the real estate bust and banking crisis ushered in the Great Recession.

My years covering the market haven’t been all doom and gloom, however. I chronicled the 2002-07 bull market that saw stock prices double after the dot-com bust and I have written extensively about the current bull – the longest in history – which began nearly 10 years ago in March 2009.

So what have I learned about investing covering the ups and downs of the stock market at USA TODAY?

Timing the market isn't easy, just as the pros say

Countless times in stories during periods of acute market distress I have relayed the following boilerplate message from Wall Street pros to Main Street investors: It is tough, if not impossible, to time the market. The best thing an investor can do is stay the course and stick to their long-term plan.

It’s true.

Why’s that? Nobody has a crystal ball to help them predict the future. And market warning signals, which are clearly visible only in retrospect, never seem to flash as brightly in real time.

I learned the hard way. I’ve never been able to time the stock market with any success. And, if I am totally honest, after screwing up once back in 2010, I never tried again.

My biggest mistake was getting out of the market in the early stages of the current bull market but not having a plan to get back in.

Here’s how I messed up.

On May 7, 2010, a day after the frightening “Flash Crash” sent the Dow spiraling down nearly 1,000 points in minutes for no apparent reason, I took the advice of a Wall Street strategist who said publicly that there’s no reason to feel bad or guilty about taking profits on a 70 percent gain, which was the size of the market gain at that time after the bear market ended in March 2009. So I moved roughly $78,000 invested in stocks in my 401(k) into cash.

The problem is I never moved the money back into the market, which turned out to be in the first year of what is now a nearly 10-year-old bull market.

The financial pain of being out of the market was sizable. On the day I went to cash, the Dow Jones Industrial Average closed at 10,380. On Oct. 3, 2018, the Dow notched a record high close of 26,828. So I missed out on a 158.5 percent gain, costing me $123,000 in lost upside.

The takeaway: Market pros are 100 percent right when they say timing the market requires two correct decisions: when to get out and when to get back in.

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Invest using the “sleep-at-night” test

I totally get that investing in stocks and holding what you bought for a long, long time, like billionaire investor Warren Buffett does, is the best way to grow wealth and actually reduces your risk.

But if watching the Dow fall 500, 600, 800 or even 1,000 points in a single day becomes an everyday thing and causes you to fret about losing all your money, putting  your emotional and physical health at risk, then you know those huge stock allocations Wall Street pros recommend just aren’t for you.

Forget what the asset allocation models cited by big mutual fund firms or your financial planner or a robo-adviser say you should do. Having close to 100 percent of your money in stocks isn’t for everyone. Because if you can’t handle wild price swings and you wake up in the middle of the night to check to see if stocks are selling off in Japan or if the Dow futures are down big or you fear tuning on CNBC at 9:30 a.m. when the New York Stock Exchange opens, it’s better to accept the way you are wired and play a more conservative investing game.

That’s what I did after the financial crisis. After witnessing that rout, it became clear to me that the key to surviving any severe market downturn is to be able to avoid getting “blown out.” That’s my phrase for losing so much money that it puts your retirement on hold or puts you in a major financial bind.

It’s true when market pros say the key to successful investing is to save, save, save and stay the course. But to stick to your long-range plan and not sell out at a market bottom, you need to marry your risk tolerance with the percentage of your money you have invested in stocks.

Because down markets get me down, I opted for a 50-50 portfolio for me and my wife. Fifty-fifty, as in 50 percent stocks and 50 percent cash and bonds. A money manager I recently met with flat out told me that I didn’t have enough in stocks. He could be right. But I don’t care.

My 50-50 portfolio does a few important things for me. It allows me to make money when the stock market is going up. But it also enables me to sleep better at night when stocks are going down.

More important, it keeps my losses measured in percentage terms in my overall portfolio from mushrooming to catastrophic levels. It also helps me better rationalize any paper losses I do suffer.

I use a simple rule-of-thumb calculation to both tally my losses and keep them in perspective. For example, since I have only half of my money invested in stocks, when the broad Standard & Poor's 500 stock index falls, say, 20 percent, my total portfolio only decreases in value by half that amount. For example, a 50-50 portfolio valued at $100,000 would only decline to $90,000 with my asset mix in a 20 percent market decline, versus a drop to $80,000 if I had 100 percent riding on stocks. 

Losing less in a market downturn allows me to avoid all sorts of bad financial outcomes. And that’s a trade-off I am willing to take even though I might leave some money on the table by not going all-in when it comes to stocks.

Tame the voice – and voices – of doom

Beware the pundits.

Repeat.

Beware the pundits.

Especially the voices of doom. I’m talking about the market watchers that try to predict the market’s next move. Both doomsayers and perma-bulls can throw you off track, by either scaring the wits out of you or making you think stocks will go up forever.

The fact is that nobody – as Warren Buffett always says – really knows for sure what direction stocks will go in the short run.

The reason is simple: Things change. Every day the market is greeted with new information, new inventions, new data, new market calls, new tweets, and new, um, news. And changing information changes the narrative for the stock market in seconds.

It’s also important to tame the voice of doom that runs through your own head. Fend off fearful thoughts of the stock market going to zero, because that is a low probability event. Keeping that in mind might help you avoid selling out at a market low just as stocks are poised to rebound. While stocks did go down 86 percent from 1929 to 1932 during the Great Depression, it was a rare event. And it didn’t happen overnight.

At times, the best thing you can do if market gyrations are causing you emotional pain is to turn off the TV, tune out the market pundits and take a break from keeping track of the Dow’s every move.

The market, I have learned, is like a lasting friendship, with ups and downs along the way. Just like life itself.