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The Price of Panic

You'll rarely find me traversing the halls of the Park Meadows mall in suburban Denver -- except during the holidays. Then I'll brave crowds to window-shop, waiting for a caffeine-inspired rush of adrenaline to tell me what to buy for my wife and kids.

Resist the impulse
Financially, of course, this is a miserable combination -- like pancakes and lima beans topped off with creamed corn. How do I know? I've shopped at Amazon.com. There, I'll pay just $229 for a sleek, four-gigabyte black iPod nano. Compare that with $249 at my local Apple Store, or $236 at cataloguer Mac Mall. See what I mean? Buying on impulse can really cost you.

Making an awful week even worse
So can impulse selling. How do I know? Well, I've done this, too, and it seems I'm not alone; the S&P 500 just finished a terrible month. The index is down more than 4% since the beginning of May. In other words, investors are selling a lot more than they're buying.

Why are they selling? Who knows? Maybe fear of rising rates. Maybe $3 gas. Or maybe the lingering image of Alan Greenspan in a grilled cheese sandwich. Whatever the reason, it all smells like irrational fear. And that, too, has a price.

Leave that $11,264 at the door, please
In my wife's case, it's $11,264 and still counting.

It was the summer of 2002. Everything was down, including the four stocks I had selected for my wife's portfolio. My ever-expanding gut told me that I didn't really understand the companies she owned. And since my wife wasn't going to learn this investing thing, I decided that my best strategy was to sell everything and get into cash. How incredibly stupid. Here's why:

Company

7/24/02 Adj. Sale Price

6/9/06 Adj. Closing Price

Forfeited Gain

Caterpillar (NYSE: CAT  )

$19.97

$67.52

238%

International Paper (NYSE: IP  )

$34.62

$32.18

(7%)

JPMorgan (NYSE: JPM  )

$20.59

$42.10

104%

AT&T (NYSE: T  )

$20.31

$26.62

31%

Source: Yahoo! Finance

Yep, those gains would have added up to more than $11,000 if I'd been a little more patient before pulling the trigger. Ouch.

The Foolish bottom line
But that's often how it goes when you panic-sell stocks or mutual funds. It doesn't have to be that way, though. Learn the Foolish (i.e., prudent) way to buy and sell stocks by taking a sneak peek at our new money management service, Motley Fool GreenLight. Click here to learn more.

Fool contributor Tim Beyers thinks few things are cooler than saving moola. Just call him a Fool. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking his Fool profile. JPMorgan is an Income Investor recommendation; Amazon is a Stock Advisor pick. The Motley Fool has an ironclad disclosure policy.


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Tim Beyers
TMFMileHigh

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.

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Related Tickers

11/26/2014 4:01 PM
CAT $105.79 Down -0.45 -0.42%
Caterpillar, Inc. CAPS Rating: ****
IP $53.37 Down -0.57 -1.06%
International Pape… CAPS Rating: ****
JPM $60.34 Up +0.04 +0.07%
JPMorgan Chase & C… CAPS Rating: ****
T $35.13 Up +0.31 +0.89%
AT&T CAPS Rating: ***

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