Once you’ve done your research, compared choices, and made your buys, give yourself a pat on the back. You are way, way ahead of most young people when it comes to finances. However, the work is far from over. A good investor must be able to keep up on their portfolio and make educated decisions in all types of scenarios.

    The first piece of advice I can give you is to learn to handle the ups and downs of the markets, and be prepared for the inevitable; a bear market. It’s going to happen whether we want it to or not, but it shouldn’t keep you up at night. Every single time the market has crashed or retreated, it has come back stronger than ever. Let me give you an example: If you were bought Toyota (TM) during the 2000 bear market, you would have watched it’s price be cut in half, from about $100 a share in 2000 to under $50 in 2003. Would it have been easy to hold during this period? Definitely not, but you should not have jumped ship, as the shares are back over $100 a share. Although the shares were getting hammered, Toyota was still putting great products out there on the road and looking towards the future to dominate the competition. Those who sold at $50 in 2003 are probably kicking themselves right now.

    A disclaimer though. There will always be companies that will be slammed so hard that they struggle for many, many years below their highs. Let’s take another car company; Ford (F) was absolutely beaten down by the 2000 crash, and it still struggles in the $7-8 range vs. over $30 a share in 1999. Why has Toyota rebounded so well and Ford hasn’t? Well, while Toyota was focusing on fuel-efficient, economically vehicles Ford was overly dependent on their trucks and SUVs, and that has cost them dearly. Throw in the fact that Ford struggles to make money paying union-member workers and it’s even more lopsided. This brings up a few good points.

    First, know your companies as well as you can. It would have been tough to predict correctly how Ford would have struggled, but nothing is ever easy to predict in the markets. Having as much information about the company and their situation as possible will give you a clearer picture. Even though it’s a tiny percentage, you own the company in which you hold stock, so you want to be on top of things as much as possible. This is where CAPS is extremely helpful, so utilize it.

    Secondly, make sure you are diversified. Diversification has got to be one of the most important ingredients to a successful portfolio. If you entered the year 2000 with all technology and internet stocks, or all 3 American car makers, you would have lost a good portion of your money and still be way down. However, a diversified portfolio would have weathered the storm and would have come back big time. A balanced portfolio can survive a couple of dud picks once in a while and will always come out of a bear market better than it went in.

    This post is getting kinda long, so I’m going to wrap it up. This basically turned into a discussion on how to survive market crashes and downturns, so next time I will be discussing a little bit more current and short term maintenance of a portfolio as well as knowing when to sell. Take care!