Is Your Patience Tanking with the Market?
If you have been paying any attention to the markets lately, then you probably have noticed the huge fluctuations the past couple of weeks. Key market events, like the Fed’s decision to keep the interest rate idle, and the rise and fall of the price of oil, seem to mean more to investors than companies actual books. Lately, the market seems to be moving with the cost of oil, if the market is way up or way down look at the price of oil, it’s almost guaranteed to have swung the opposite direction. What does all of this mean to us and how should we react?
We realize that looking at your monthly investment statements is starting to become a drag. Each month seems to be getting worse. Naturally, when we see negative amounts in our holdings we automatically feel like selling. There are times when selling is probably the best option, for example when you sell losses to offset some gains or the company is just really going nowhere. But for the most part, holding is probably your best option and if you can afford it, purchase additional shares at a discount. For those of you that automatically invest with each paycheck, you are in the best position. You are experiencing losses, but are buying cheaper, which in the end will amount to less stress and a decent return.
Remember, when you sell a security at a loss, you lock in the loss. In other words, that money went to the left, to the left (Beyoncé anyone?). There’s no waiting for the stock or fund to recover and this fact is easily overlooked when emotions take over. In particular, selling off small amounts of securities sets you back in commissions as well, which adds to your loss. I’m not saying you should hold on and never sell anything, however, when times get bad, your best bet may be to pretend you don’t notice. Check out a previous post where we discuss the benefits of staying calm when the market falls. $
Related articles you might be interested in:
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader or email.
Comments
@Invest Money Lab - Everyone has a different approach and goals when it comes to investing. Yours is interesting, but by always selling when your price reaches your loss limit, your essentially losing every time the market sinks? You should keep us posted on how it works out for you.
Unless something fundamental changes with a company or I feel they lose their competitive edge, I’m going to ride it out most likely. For example, I’m down a fair amount on Toyota right now, but I think it’d be crazy to sell off now. I’m banking on a very bright future for them as well as Honda.
Like you mentioned, if the company is still in good shape, bear markets are the time to be loading up on stocks that are on sale. It really doesn’t make much sense to buy high then panic and sell low.
I have been selling off portions of some positions that have long been in the green. I haven’t sold any outright, but I’m locking in some long-term profits and loading up on commodities and cheap stocks right now.
Good post by the way. 
Hi Frank,
I used to act like what you mentioned. I pretend not to notice when the security price falls. However, I realized I was accummulating a larger loss that way.
Now I think differently from your approach. I prepare myself for a certain loss when I open a new position. The cut loss price will be automatically triggered whenever the price falls to the limit I am prepared to lose.
I do not know whether I will be successful in this method or not. But I need to react differently to find a right recipe for myself.