Panic Selling In A Market Turmoil

Hold on to your seats, the market has been, and continues to be in for a bumpy ride. This post is to stop you from making a dreaded mistake, panic selling in a market turmoil. This should actually be the time for calmness to prevail. Here are some reasons to get yourself off the ledge.

PANIC SELLING IN A MARKET TURMOIL

What is panic selling?

Panic selling is the result of a stock rapidly declining in price. This might be caused by investors taking a hard look at the stock and the value it offers (taking a closer look at the assets and expense sheet for instance).

Panic selling can also be caused by short-term investors who force the stock price down far enough for the new or waiting in the wings investors to cash in and buy at excellent prices, these people are usually referred to as the bottom feeders. 

The year so far has not been kind. The doomsday predictions are everywhere. The Dow had the biggest drop of the year just recently. Over 600 points! People are afraid that a recession is coming, and are trying to batten down the hatches so to speak.

Why are people panicking?

The past few weeks have been very ferocious for the market as a whole. There seems to be no place to hide, and all sectors of the market are being pummelled. Some of the things that have sent the market into a tailspin include:

• Covid and the continuing implications. There is no need to rehash all the havoc that has been caused by the little virus that could. A mere look down any street will show you the consequences, evidenced by shuttered businesses. The constantly changing variants made for an uncertain future that many businesses, especially small businesses couldn’t survive. Big companies are not immune either. The supply chains have become entangled as some try to get their goods into the consumers’ hands. We’ve all seen, and maybe experienced the empty shelves in the stores.
• Inflation. The U.S. inflation rate has now hit its highest since 1982. It is currently at 7.5% while Canada is about 5%. There is no sign of a slowdown either. Consumers are hit by rising prices on all fronts. From rent to grocery store items, the money just doesn’t stretch as far, especially for those who were already living hand to mouth.
• Interest rates. The Feds are walking a tightrope between trying to keep inflation at bay, and not triggering a recession as a consequence. Home loans and every other kind of loan have been at extremely low prices, a 2% fixed rate for a  mortgage was the norm until recently. Credit cards debt soared as it was cheap to borrow. Now, the Feds are pulling back a bit, and the easy money is no longer flowing.
• Rumors of war. From the missile attacks in the middle east to Russia flexing as if to start a war with Ukraine. All these unrests around the world, especially from oil producing countries means there´s no no doubt about disruption of the energy sector, for example, leading to even more volatility and uncertainty. 

FORTUNE FAVORS THE BRAVE                         

– Terence

Survival of the fittest as the market rocks and rolls.

Fear, uncertainty, and more fear leads to panic selling:

Fear is the mind-killer! The uncertainty leads people to panic selling during financial turmoils as investors, big and small, either try to cut their losses or hold on to the gains they have made. This is especially true for newer investors who have become accustomed to a market that has soared and has basically been on an upward trajection for years.

Having not known a true financial downtown, they react with knee-jerk emotions. Panic selling is a gut reaction. A very basic and normal human one as a matter of fact. Rather than evaluating the fundamentals, people give in to the emotion and fear and sell your stocks with little thought to the price you sell at.

Now, imagine millions of investors doing the very same thing, causing the frenzy to feed on itself. Seasoned investors on the other hand know that the market is a cycle, past experiences have shown them that once the volatility ends, the market usually rebounds nicely and favors the brave.

So, should you be panic selling now?

You could ask 20 different so-called experts and get 20 absolutely different answers. The truth is that nobody can predict what the future will bring. They can only make educated guesses, based on the market’s past history.

My advice and unsolicited opinion on panic selling in a market turmoil?

No, do not get sucked into panic selling in this market turmoil.

• Look at your investment portfolio. If you have individual stocks, check out the companies again (hopefully you did your research prior to investing), as in dive deep into their business models. If you believe they can ride our the storm, stay with them.
• If it’s a shaky business model, or something that you don’t fully understand (Bitcoin open source P2P money for example), or perhaps a federal investigation or allegations of corruption etc., this might be the time to take your money off the table.
• Invest only money that you can afford to lose. If you’re close to retirement age, don’t get too greedy. If you’re young on the other hand, you can afford to ride the wave and you will come out stronger. Use your time to read up on wealth accumulation instead of watching the market constantly. Can you picture Warren Buffet or Jeff Bezos constantly watching the drop except to look for chances to buy more?
• Do not under any circumstance try and time the market. A lot of people who panic sell during a market downturn will often try to decipher when the market will bottom out and then rebuy. You would probably end up leaving money on the table or buying back too late to make any substantial gain. The general advice is that the key to successful investment is time in the market, not, market-timing.

So, are you going to be one of the ones that will let a cool head prevail, or are you going to join the masses and panic sell while the market goes through a much-needed correction?