How to keep calm when others panic

Not everybody is happy with the agreement on Greece’s national debt that was reached after much hard bargaining. But it didn’t exactly bring world stock markets crashing into the abyss, either—although many predicted just such a disaster. That gives it a resemblance to the Y2K crisis of a dozen years ago.

Y2K, in case you missed it, was media shorthand for the crisis that was supposed to hit at midnight on December 31, 1999. That’s when the world’s computers were supposed to freeze up; they were programmed to designate years by their last two digits, and they wouldn’t know how to handle the year “00”. Many investors thought this would usher in an immediate stock market plunge. Nothing of the kind happened. Before 1999 ended, owners of all of the world’s most important computers had found ways around the problem in time to avoid it.

The Greek debt crisis did not have the same precise countdown as that event, but the principle for investors is the same.

Generally, this is how these widely discussed and presumably momentous crises turn out: they leave people wondering why all those dire predictions fizzled out.

Gloomy forecasts can also be brought on by a short, sharp crisis. Witness what happened last summer when the 405 Freeway in Los Angeles shut down for two days of scheduled maintenance. The media predicted traffic chaos (they called it “Carmageddon”, after a popular video game). But commuters took alternate routes and no major problems occurred.

At The Successful Investor ^[2], our approach to investing is conservative. It puts a premium on safety. Yet it has given investors spectacular gains on many stocks that have soared—including stocks we recommended that have been taken over. The most recent of these was Gennum, which soared more than 100% in day on news of its takeover bid. As a new subscriber, you can save $50.00 on an introductory subscription to The Successful Investor, and receive a FREE copy of Pat McKeough’s report on the “My #1 Stock Pick for 2012” when you order. Click here to take advantage of this special offer now ^[3].

Investing advice: Forecasters can also miss with optimistic predictions

You will also see upside-down versions of this principal. One rather drastic example occurred in January 1973, when the U.S. and North Vietnam concluded a peace agreement. At the time, the Dow Jones Industrial Average had recently gone above 1,000, a level that it had reached but failed to exceed twice before, in 1966 and 1968. It was widely assumed back then that the economic strain and uncertainty of the Vietnam War was holding the stock market back, and that the Dow would shoot up to 1,200 or higher when the war ended. Here too, nothing of the kind happened. Instead, the index dropped to 570 by the summer of 1974.

These are all instances of a broader investing principle: when investors generally accept a widely talked about, specific market prediction, they take measures ahead of time to avoid the risk or profit from the opportunity. By the time the predicted conclusion is expected to appear, the events that made it seem a sure thing have already spent their impact. This turns the prediction into a dud at best. Often, the opposite of the predicted event occurs.

To put it in even more basic terms, the things that really hurt investors are those they never saw coming. To succeed as an investor, you need to plan your investments with this simple fact in mind. The best way to do that is to follow our three-part investing advice.

1. Invest mainly in well-established companies; they have the experience to survive and prosper despite setbacks.
2. Spread your money out across the five main economic sectors; in any setback, some sectors do much better than others.
3. Downplay or avoid stocks in the broker/media limelight; that’s where failed predictions can do the most damage to your finances.

Many in Greece are upset with the debt settlement; so are those holding Greece’s sharply discounted bonds. And there will be more anxious headlines over the problems of Europe’s debtor nations. Yet it seems highly unlikely that any future scenarios in the debt crisis will catch investors unaware, especially those who have planned their investments with our three-part strategy in mind.

You will get specific advice and recommendations on how to follow our three-part investing strategy every month in The Successful Investor—and every week in The Successful Investor hotline, which included in the price of your subscription. As a new subscriber, you can save $50.00 on your introductory subscription. Click here to take advantage of this special subscription offer ^[3].