Stocks plummet- Is it time to panic?

Let's put things in perspective
March 4, 2009 8:06:38 AM PST
The market appears to be hitting new lows every day. What is driving the decline?The S&P has dipped under 700, over a 50% decline from its peak and equal to levels seen as far back as 1996. Two big factors have caused this. First, the government extended a $30 billion helping hand to AIG, after the company reported a $60 billion loss for the 4th quarter. This is frustrating and discouraging to investors as it is the fourth attempt the government has made to save this company ? with a total bill of over $170 billion.

How far will the government go to help AIG?

AIG is a huge, expansive institution providing service for 74 million customers in more 130 countries. Given its international presence, and its hand in annuities and life insurance, the government is not likely to let AIG fail.

Is Berkshire Hathaway the 2nd big issue this week?

Yes, Warren Buffett's famous shareholder letter was released this weekend, reflecting the worst earnings in the company's history. When Warren Buffett says "the economy will be in shambles throughout 2009" people panic. But just because the economy will be in bad shape doesn't mean the stock market will continue to do poorly, as the market has a tendency to overreact.

These are scary times and the news is getting worse. We were expecting this storm, but it has certainly yet to pass. It is important to remember that the stock market will get better before the economy gets better. Investors are smart - knowing how important it is to be able to stomach even the toughest of downturns in order to do well in the long run.

One thing everyone should know is that even the brightest, most experienced and well respected investors continue to say that this is a good time to invest.