You never want to sell when stocks are low. And as the markets endure huge pressure from ailing financial institutions, you couldn't pick a worse time to try to sell.

For a long time, investors have stayed relatively calm about the market decline. After just three days of violent swings during daily trading, however, the Dow is down 800 points. In the history of the S&P 500, there have only been nine days when the index dropped 50 points or more -- and we've gone through two of them already this week.

The ride may well stay bumpy for a while. That's going to make it harder than ever to follow your long-term investing plan. You might feel like you're throwing good money after bad. Yet that's exactly what would be best for many investors out there -- and it beats the pants off panic-selling into this maelstrom.

It's getting ugly
The last three days have seen the highest volume of shares traded in the NYSE's history. More than 26.7 billion shares traded hands in NYSE composite trading between Monday and Wednesday. Trades worth more than $190 billion were made in floor trading alone on the Big Board. That's a continuation of a trend throughout September -- every day last week, volume was 6 billion shares or more.

Just look at a list of some of the most actively traded issues from yesterday:


Average Volume

Shares Traded on 9/17


86.3 million

545.8 million

Morgan Stanley (NYSE:MS)

28.7 million

329.0 million

Wachovia (NYSE:WB)

96.0 million

243.6 million

General Electric (NYSE:GE)

66.9 million

227.8 million

Ford (NYSE:F)

65.0 million

122.9 million

Pfizer (NYSE:PFE)

45.9 million

73.2 million

Time Warner (NYSE:TWX)

25.2 million

45.7 million

Shares are trading hands at a furious pace. Because share prices have fallen so far, especially on AIG and the other financial stocks, it's a lot easier for even small investors to trade relatively large numbers of shares. But much of the activity is coming from traders who believe that they have to do something during the downturn to try to preserve capital.

When trading activity gets so heavy, it's impossible for traders to pay full attention to the fundamentals. Morgan Stanley, for example, saw its share price go as high as $26 and as low as $16 yesterday, before closing about in the middle of that range. That may be good news for day-traders, but that kind of volatility isn't coming from any deep, objective assessment of how a company's prospects are changing.

Look for opportunity
When traders forget about what actually gives stocks value -- things like future earnings, business prospects, and dividends -- you don't want to join their herd. If you decide that the only way to make money in a down market is to get more active, you're playing their game -- a game in which your inexperience and emotion will put you at a severe disadvantage.

Instead, stick to your plan, and find promising stocks for the long-term. Take advantage of bargain prices to load up on the companies you think will prosper for years to come. Given how many companies have gotten severely beaten down, a stock needs only to weather the current storm to do well.

Specifically, keep these things in mind:

  • Know your stocks. Don't buy into a stock just because it's cheap. Make sure you know why it's cheap, along with the challenges it faces and how you think it will overcome them.
  • Pick your price. With share prices falling nearly every day, you can afford to be choosy. Decide how much you think a stock is worth, give yourself a margin of safety, and wait for the market to come down to your level.
  • Be ready for more losses. In all likelihood, if you buy stocks now, you're not going to pick the exact bottom. That's not a problem, as long as you're prepared. At this point, you shouldn't be focused on what your stock will be worth next month. Instead, think about what it'll be worth in several years, when all this is a bad memory.

Most importantly, try to stay calm. The investor with the most patience will end up making the most money from this tough period for the market.

More on the current financial crisis:

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Fool contributor Dan Caplinger is seeing some great investments get thrown out with the bathwater. He owns shares of General Electric. Pfizer is a Motley Fool Income Investor pick and a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy will wait up for you.