4 Things to Do if You Panicked Last Week

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It's a story that's played out way too often. Stocks plunge. Panic-stricken investors dump everything rather than losing all their money in the inevitable crash. But the inevitable crash doesn't happen, and the market regains all of its losses. It's no wonder so many people think the markets are rigged.

If you panic-sold last week, you're not alone. But succeeding at investing comes down to breaking the cycle of self-destructive emotional responses to bad markets. If you want to stop seeing episodes like this happen again and again throughout your investing career, you need to clamp down on what may seem at the time like a perfectly rational response to crisis situations.

Losing the battle to win the war
Financial TV channels make you feel like an idiot when you lose money in the market. Watching them, you'd think that if you were only sophisticated and nimble enough, you could always avoid losses just by making the right moves fast enough.

But in reality, even the best market mavens make dumb moves. The key, though, is that they don't let those mistakes define them. Rather, they learn from them -- and move on to bigger and better things. So if you're finding yourself on the sidelines now, here are some tips on what to do next.

1. Don't just buy everything back.
Like kids with their hands in a cookie jar who hear their parents come home, your first impulse when you make a mistake with your investing is to put everything back where it was. That would mean buying back everything you sold last week.

But realize that whatever you had in your old portfolio made you scared enough to panic, and so restoring everything to the way it was leaves you vulnerable to future panic attacks as well. Instead, take this as an opportunity to rearrange your investments in a way that you'll feel more comfortable about and will make you less likely to freak out the next time stocks dive.

2. Judge what to do based on how particular stocks and sectors have done.
Sure, the overall market may be back where it was before last week's roller-coaster ride. But that doesn't mean that every stock is back to normal.

For instance, financial stocks are still reeling from the implications of the European debt crisis. Not only is Wall Street megabank Citigroup (NYSE: C  ) down from its levels a week ago, but regional players BB&T (NYSE: BBT  ) , Zions Bancorp (Nasdaq: ZION  ) , and KeyCorp (NYSE: KEY  ) are also off sharply as they try to balance the Fed's long-term commitment to low rates against a slowing recovery. Similarly, cyclical stocks like consumer-goods packaging maker Owens-Illinois (NYSE: OI  ) and homebuilder Pulte Group (NYSE: PHM  ) still find themselves way below their levels from before last week. If the economy slips into a double dip, then those stocks could get cheaper still -- and staying on the sidelines may be the best place to be for now.

Conversely, you've missed the boat on some other sectors. Tech stocks Cisco (Nasdaq: CSCO  ) and Yahoo! have moved up sharply on positive news, so trying to replace them now would cost you a lot. You'll likely be better off finding alternatives that still have room to appreciate.

3. Give yourself some time.
The biggest fear people have after a panic is that they'll miss a huge run upward. That happened last year after a bad August.

But in the long run, it's much more important for you to get a handle on big-picture items. First, how much risk can you take in your portfolio without panicking at the first sign of a downturn? Second, what's the best way to align your portfolio to reflect that risk tolerance while still letting you meet your goals? In most cases, you'll find that adding some new investments to replace other higher-risk ones will get the job done easily and efficiently.

4. Leave yourself a time capsule.
The next time panic strikes, you won't remember how you felt after the last one -- you'll only remember that panicked feeling. So write yourself a note expressing your emotions both during and after this latest panic. Hopefully, that will help you calm down during the next crisis so that you can take better-considered action.

It's not too late
Just because you made a mistake and panicked last week doesn't mean that you're doomed to failure. All you have to do is learn from that mistake, and you'll end up being a better investor than you were.

If you need new stocks for your portfolio, we've got some ideas for you. This Motley Fool free special report talks about five stocks we've put our hard-earned money on, and we think you should too. Click on the link to see more.

Fool contributor Dan Caplinger hasn't panicked so far. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of KeyCorp, Yahoo!, Cisco, and Citigroup; and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Cisco and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy doesn't have a panic button.

Read/Post Comments (11) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 16, 2011, at 2:13 PM, jimmy4040 wrote:

    Additionally it only makes sense in a choppy economy to sell a portion of your gains as they happen. For instance a 30-50% run is huge, so why not take some off the top as they say. That way you don't get caught in today's SODA situation riding a big gain all the way back down to where you started.

  • Report this Comment On August 16, 2011, at 5:34 PM, The1MAGE wrote:

    I panicked last week and jumped into the market. To me the emotion isn't that I am losing money, because I won't if I don't sell, but that there are great deals going on.

    When others are worried another black Monday is on us, what is running through my head is black Friday.

  • Report this Comment On August 16, 2011, at 9:01 PM, idlenote wrote:

    Thanks for telling me I'm not really a chump. All I could see was my retirement going down the drain and I jumped the wrong way, been kicking myself ever since, but if things go down the tubes it may not have been the wrong move. Meantime my retirement is safe and it may not turn out to be such a wrong decision, we'll see.

  • Report this Comment On August 16, 2011, at 10:35 PM, IIcx wrote:

    If you sold last week you're a full blown idiot and are not watching the technicals and the charting. You should have sold at the head and shoulders before the dip knowing there isn't a politician that can't make a speach and drop the market these days.

    You should have been buying the bottom of the dip; SPX 1100 based on chart resistance. We're in a new trading range, 1100 is the low and do some research to see the obvious high.

    Panic should not be in your playbook!

  • Report this Comment On August 16, 2011, at 10:49 PM, prose976 wrote:

    If anyone can point out a solitary bright spot in the local, state, national, international or global economies, I think that would be sound advice. All indications are there little if nothing can be done during the next year as politics turns to campaigning and money for consumers dries up. Surely there will always be individual companies that can hold steady as the remaining steadily attempt to eliminate overhead in jobs while employing technology but this creates only the fantasy of a positives with greater profits but lower overall revenues. Europe is a mess, China is a facade with bubbles about ready to pop all over and the U.S. is a shambles - with the Fed running out of possibilities for relief. I would certainly get back in the market if there was a glimmer of positive indicators anywhere, but everything pretty much leads to inflation, printing our way out of debt, sovereign bankruptcies, etc. It looks like curing the global economy is going to require a new swath of leaders and about a decade. This is going to be a lost my opinion. If you have a crystal ball, you may be able to find positions in companies that will reward you grandly. But trading a basket of stocks will not serve you well. MF Stock Advisor is still down about 35% since last month. I'll bet the market itself will settle back down to between 9000 and 10000 where it should be historically - that's about 10% annual return from the lows of 2007/2008. Just my two cents for what it's worth. Fool on!

  • Report this Comment On August 16, 2011, at 11:02 PM, IIcx wrote:

    Wait for the dip tomorrow and try to buy the stock at the morning lows (approx. 10:30 am EST).

    Stocks that should pop this week include BRCD, IO, and WY to mention only a few.

    Watch the charts -- here's a great site:

    ... and sell at resistance; the site shows you a portion of the trend.

    We're in the seasonal "horse latitudes" so expect wild swings for the next several months. Each swing offers an opportunity.

    Good luck but never make a trade you haven't researched first and never let a profit go.



  • Report this Comment On August 16, 2011, at 11:05 PM, IIcx wrote:

    Crying towels are passed out at the door prose976 -- there is nothing emotional about a good trade.

  • Report this Comment On August 16, 2011, at 11:15 PM, prose976 wrote:

    Not crying, just taking an honest assessment of the economies and factors that affect values. All indicators point to fewer profits and inflation - globally. Unless you have contrasting information. I'm an eternal optimist when it comes to stocks. The only part that can't be reconciled is that any stock can be shorted to $0, and there are no logical factors that would indicate that stocks will continue to rise at any rate greater than historical rates (approximately 10-12%). If you have other factual information, please share with the rest of us.

  • Report this Comment On August 17, 2011, at 4:03 AM, JanM75 wrote:

    If you sold - then wait. The market has ways to go down. None of the fundamental issues which drove the market down last week have been solved; Europe is still a mess, America is similarly debt laden and Japan is still reeling from the Nuclear melt down. In addition German growth has slowed more than expected and UK has internal issues which could cause a panic.

    I expect good buying opportunities in the future and am keeping cash available.

  • Report this Comment On August 17, 2011, at 8:01 AM, IIcx wrote:

    good points prose976,

    - I started to wonder what the US gold reserve is worth at these historic levels and discovered the US has the largest gold reserve in the world and if calculated at $1,700 an ounce is worth over 5 Trillion dollars. US debt to US gold reserve is less than 3:1; doesn't include unfunded debt.

    - Liquidity isn't an issue

    - Inflation isn't an issue at this point

    - The Fed owns the majority of the US debt

    - The new congressional committee is likely to address a flat tax which could generate and save Trillions with a simplified tax code and encourage business growth.

    - Entitlements will be under review

    - The wars are finally winding down

    - Defense spending and accountability is under review

    - ObamaCare is facing a Supreme Court challenge which could allow for significant amendment to make it a better Bill

    - Congress is aware that the newly created regulations are choking the life out of business -- likely to change

    - The EU is not going to sink like a rock -- note: Germany has the second largest gold reserve; nearly 3 Trillion @ $1,700 oz.

    - China is finally considering the logic of playing by the rules related to the value o the Yuan

    - Japan didn't contract as much as expected

    - State governments are cutting waste and in many cases have revenue surplus

    The list goes on and on -- the news like to talk up the issues but the recent correction, in my opinion, was over done.

  • Report this Comment On August 17, 2011, at 9:27 AM, latinoeconomist wrote:

    Buy LOW, sell HIGH. Is it really that difficult?

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