5 of things, which shouldn't be done on falling markets
Refreshing the list of things, which should not be done by an investor during the correction period, so as not to harm your financial and moral condition.
Rally in world markets gave way to correction, which looks menacingly at investors from the chart of the American index S&P 500. For 18 months of almost continuous growth, since April 2020 G., seasoned investors have already lost the habit of deep drawdowns, and newly arrived private investors risk facing it for the first time. Here 5 of things, which shouldn't be done.
5 of things, which shouldn't be done on falling markets
1. Panic and urgently "do something about it"
During times of high volatility, it may seem, that something needs to be done urgently. Especially when the value of the portfolio goes down. However, this more often leads to reckless decisions and commission costs., not to benefit or mitigate risks.
Correction is a reason to think well. Worth evaluating, what caused it to happen, Has anything changed in the business of the companies from the portfolio, and also study your emotional reactions to market fluctuations.
It will be helpful to remember your investment goals and evaluate, how they intersect with the observed correction. Only then can you make any adjustments in the portfolio..
2. Sell the best securities from the portfolio
In case of a fall, there may be a desire to fix profit on those securities, who grew the most. The logic is simple and clear - the more you grow, the harder it can fall, which means, you need to take profit and run. But often in practice, this is not at all the case..
Strong growth in securities is almost always associated with strong fundamental drivers. If these drivers are still valid when corrected, then such stock, against, may turn out to be much stronger than the market and will recover faster than others. Excluding her from the portfolio, the investor runs the risk of losing a promising asset.
3. Buy that, what fell the hardest
The other extreme is to buy back the most fallen assets in the expectation of, that the recovery potential for them is higher. This potential may well not be realized.
Before buying anything, worth finding out, why exactly this stock fell so much. Maybe, the risks for her have increased greatly, maybe, growth in the previous period was not justified, and the correction only returned everything to its place. In these cases, you should not count on a quick recovery..
4. Speculate with your shoulders
The temptation to buy back fallen stocks using leverage and get a quick profit on a rebound can lead to dire consequences.. Drawdown may be deeper, what it seems, which in the worst case will lead to the forced closure of margin positions with losses.
5. Fix a loss at the peak of the panic
When stocks fall, investors often do not take their eyes off the quotes and make a decision to sell based not on the analysis, and from that, how much the size of the losses approached their psychological pain threshold. In this case, the decision to sell the falling paper comes spontaneously.. It often catches up with the investor at the peak of panic in the market., when securities are trading at the lowest retracement point at high revs.
If you are sure, that stocks in your portfolio remain promising, avoid checking your balance every minute and devote that time to more pressing issues. This will allow you not to shatter the nervous system and maintain a sobriety of thoughts..
