Saturday, 22 November 2014

The Best Way to Handle a Stock Market Panic

By Dan Ferris

It's normal to feel lousy about your stocks.

The share prices fall... You log into your online account... The numbers are all red and much lower than they were several months ago... And you just feel bad. It's normal.

But be careful you don't let your emotions lure you into making a mistake. That's easy to do... There are a lot of voices screaming loudly in your direction. Almost all of them are trying to scare you so you'll become dependent on them for information and guidance.

I've made my living in the publishing business since 1997. You can count on most people in the industry to sell what they think is popular. And good investment ideas are never, ever popular. Think of how unpopular gold was in 1999 or how unpopular stocks were in 2009.

Still, many investors let the media and the market tell them what to do. When the market rises, they believe it's telling them to buy. When it falls, they believe it's telling them to sell. There's a much larger and even less informed group that simply feels good when stock prices rise, so it keeps buying... and vice versa.

This is the worst type of herding behaviour. It is a terrible way to approach investing.

Value investors don't let the market tell them what to do. They take advantage of the market's offers to buy and sell at various prices. So the delight we take in a falling market is a primary distinction between value investors and others.

Remember... value investing isn't about making great macro calls. It's not about calling the next crisis, or predicting interest rate trends or GDP numbers. It's impossible to accurately predict those things. If you believe you know someone who is able to call the market's ups and downs, just wait a little longer... They'll soon be wrong.

Value investing is about doing research, taking your time, picking great companies, buying them at cheap prices, and holding them for as long as the business continues to perform well. The moment you think it's about predicting the future – and that you've got a crystal ball – you've already lost.

So my advice right now is to tune out the hysterics. Don't panic. And, most of all,don't abandon the discipline of buying great businesses when they get cheap.

When you're feeling lousy about your stocks, this is the kind of information you need to remember.

As long as you plan on keeping your money in the market for 10 years or more... and as long as you buy great stocks for great prices... a falling market shouldn't cause you anxiety.

It should cause you delight.

Good investing.


Quote for the day

“I know that to be successful, I have to be frightened. My biggest hits have always come after I have had a great period and I started to think that I knew something.” -  Paul Tudor Jones