What Black Friday Revealed About the Fiscal Cliff

Investors are among the biggest over-reactors in the world.

I take that back. Traders are chronic over-reactors. People who trade stocks on a daily or hourly basis ride a constant emotional rollercoaster, living and dying with every headline that affects stocks on a macro level.

Long-term investors, meanwhile, are generally more even-keeled. They buy stocks with conviction because they think those companies have value at a particular price, and they don’t allow the day-to-day whims of an uncertain economy move them from their positions.

And that’s how most people are. They operate the same way regardless of what the morning headlines say. That’s how we just saw another record-breaking Black Friday weekend despite the looming specter of the fiscal cliff.

Sure, the words “fiscal cliff” send pangs of fear coursing through every stock trader’s body. That’s why stocks fell more than 5% in the week following the election. Short-term traders need the news to be all sunshine and roses – and right now, it isn’t. So many of them are selling off their stocks – and will continue to do so until Congress reaches a deal to avoid this financial disaster.

Holiday shoppers, however, didn’t seem to be shaking in their boots about the impending fiscal cliff. They spent a record $59 billion over the Black Friday weekend – from Thanksgiving to Sunday – according to the National Retail Federation. Online sales also topped $1 billion for the first time ever – and that was before the numbers for yesterday’s Cyber Monday – the traditional day for big online holiday sales – were in.

Between online and brick-and-mortar shoppers, a record 239 million people visited stores and websites over the Black Friday weekend – up 9.2% from a year ago. The average shopper spent $423 over the weekend, up from $398 last year.

You get the point. Black Friday was a booming success as always – fiscal cliff be darned. Perhaps, in the coming weeks, the fiscal cliff will rear its ugly head. If a compromise to avert the cliff cannot be reached soon, maybe it will convince some shoppers to spend less as the holidays draw near.

But so far the fiscal cliff has done little to discourage holiday shopping. And that’s good news for both U.S. retailers and the economy as a whole.

The headlines of late in the investment news world have been almost uniformly doom and gloom – from the Wall Street Journal to Financial Times to Wyatt Investment Research. And yet Americans are still spending money at a record clip. That should lend some perspective the next time you read another “sky is falling” headline.

I’m in no way dismissing the impact going over a “fiscal cliff” would have. Some very bright economists insist that the $500 billion in tax hikes and spending cuts President Obama’s Budget Control Act calls for would send the economy into another recession. At the very least, the act would weigh on economic growth and send the markets into full-on panic mode should it take effect as scheduled on January 1.

Until then, however, we long-term investors should not succumb to panic. We invested in certain companies because we thought those companies would remain strong regardless of market conditions – and that same theory applies now.

Stick to your conviction that the long-term investments you hold – the stocks that have been making you money for years – will be able to weather whatever storm lies ahead. Don’t abandon ship right now just because clouds are beginning to form yet another disaster in what has been a long line of financial catastrophes.

After all, if U.S. shoppers aren’t panicking about the fiscal cliff, why should we?

P.S. Join my colleague Andy Crowder this Thursday at 6 p.m. ET for his latest live options chat, titled, "My Step-By-Step Approach to Safely Collecting Monthly Income." Click HERE to join. It's completely free!

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