Recs

8

The Crisis Is Over!

If you're looking for consistency in market opinion, expect disappointment. Sentiment turns on a dime these days. If you let that sentiment sway your investment decisions, you'll lose big over time.

In July and August, you would have thought the world was ending, looking at panicked investors responding to credit markets that were seizing up. Stocks plunged, and some speculated that what looked like a buying opportunity was actually a value trap for the unwise.

What a difference a season makes. Once it became clear that the stock market wasn't going to fall off a cliff, regular investors went right back to their old habits. In September, mutual fund investors added $7.5 billion to stock funds, reversing a significant move out of stocks in August. And as the Fed made its second straight rate cut yesterday, the Nasdaq reached yet another seven-year high, and the Dow and S&P find themselves back within spitting distance of all-time highs.

The age-old mistake
It's just the latest example of how investors let emotion get the better of them. Sure, it's natural to watch your account balances dropping and decide to get out while the getting's good. And it's easy for financial advisors to tell you how dumb it is to give in to your emotions.

But while selling in a panic may not be the best thing in the world to do, the real mistake investors make is to get right back into their high-risk positions once they think everything's back to normal. By buying back their stocks -- inevitably at a higher price -- they leave themselves just as exposed to future market drops as they were before. But they give up a lot of the potential reward from taking that level of risk when they sell low and buy back high.

Consider how much money you would have lost if you sold during those days of panic in the summer, and waited until yesterday's all-clear from the Fed to buy them back:

Stock

Price on 8/16

Price on 10/31

Gains missed per 100 shares

MasterCard (NYSE:MA)

$130.00

$189.91

$5,991

Baidu.com (NASDAQ:BIDU)

$168.89

$382.49

$21,360

Google (NASDAQ:GOOG)

$491.52

$707.00

$21,548

Colgate-Palmolive (NYSE:CL)

$65.44

$76.27

$1,083

Goldman Sachs (NYSE:GS)

$169.85

$247.92

$7,807

Research In Motion (NASDAQ:RIMM)

$66.01

$124.51

$5,850

Source: Yahoo Finance.

From the way the markets are behaving, it's evident that investors believe the crisis is over -- at least for today. But that doesn't mean it won't be back tomorrow. Do yourself a favor now: Find an investing strategy that makes you comfortable, and then concentrate on sticking with it,

 no matter what fortune the markets bring you.

For more on surviving the markets:


Read/Post Comments (0) | Recommend This Article (8)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539565, ~/Articles/ArticleHandler.aspx, 9/30/2014 6:52:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 9 hours ago Sponsored by:
DOW 17,071.22 -41.93 -0.25%
S&P 500 1,977.80 -5.05 -0.25%
NASD 4,505.85 -6.34 -0.14%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2014 4:00 PM
BBRY $10.23 Down -0.03 -0.29%
BlackBerry CAPS Rating: *
BIDU $220.47 Up +1.45 +0.66%
Baidu CAPS Rating: ****
CL $65.63 Down -0.07 -0.11%
Colgate-Palmolive CAPS Rating: *****
GOOGL $587.81 Down -0.09 -0.02%
Google (A shares) CAPS Rating: ****
GS $183.83 Down -1.29 -0.70%
Goldman Sachs CAPS Rating: ***
MA $74.52 Down -0.54 -0.72%
MasterCard CAPS Rating: *****

Advertisement