In today's video, I talk about how emotions are an investor's worst friend and fuel both panic buying and panic selling. I am also sharing some tips that I use to help with controlling this emotional tick.
What is panic selling?
During a significant market decline, we start to believe that stocks will continue to go down. We end up selling stocks for a loss due to the fear that we will lose more if we hold on to the stock.
What is panic buying?
During significant market rallies, we start to believe that stocks will continue to go up. We end up buying stocks at crazy valuations due to the fear that we will miss future returns.
How can I avoid panic selling and buying?
Each investor is different, but I believe the best way to remove emotions from investing is by having a plan in motion. No one knows if the next few days are going to be big red days or big green days, so by having a plan for both you are not caught by surprise.
I invest money into the market every week. During big market rallies, I tend not to do anything different, and I continue to put my money to work weekly, as I am not one to time the market. During big red days, I have a different plan. I tend to put a small portion of my cash position into my account. I say small because I am not here to time that market and many more red days can be ahead of us, so I do not want to use all my cash at once. This plan may seem simple, but having a plan in place has saved me from investing based on emotions.