Panic is the enemy of your finances
Panic is the enemy in any situation regarding finances. Financial matters are extremely important to all of us because they represent more than our bank account or our portfolio, but also our livelihood and the quality of life that we are able to lead. As such, every financial decision is one that warrants a lot of sound deliberation and consideration before committing to it. It’s unfortunate, then, that the fast pace of the stock market sometimes encourages people to make rash decisions, especially when they think they see dark clouds looming on the horizon.
The downward trend of panic
Say that you have money invested in several different stocks, and you’re beginning to notice an overall downward trend. For whatever reason, this leads to a panic. You start to picture how it would be to lose every cent that you’ve invested and be reduced to nothing. You sell off every stock you own and adopt a totally new strategy, investing in a number of totally new stocks across the board, whose performance seems more likely to live up to your standards. However, in doing so, you miss out on a unpredicted surge in the stocks you just sold.
Adjust your investment strategy
If you had taken just a little more time to think about things, you might have realized that your stocks were in a sound industry, one that had been around for years. As such, the risk of a total bottoming out is virtually nil. You could have adjusted your strategy and maybe invested in some other stocks without totally selling off your current interests. However, panic robbed you of that potential.
Panic is the enemy. Let rational, sound judgment be the basis of your financial life, not it.
See you next week for part 5 of Basic Investment Strategies.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2008
{ 6 comments… read them below or add one }
Points taken Sean , we are still paper trading & are like sponges at the moment . Taking any advice we can get keep it coming please.
Hi Allen. Paper trading is the best way for you to get started. Keep it up!
Thank Allan. Please spread the word. I am to help. Cheers!
Hi Sean,
You’re right; to panic in this situation is bad. But then, panic any time is bad as it leads you to make bad decisions. I keep reading that you need to take the emotion out of your investing and I’m understanding why more all the time.
Again, this is another great reason to diversify into real estate or something else. So, when stocks go down, you still have something to fall back on.
You are right here Jazz, it is a wise person who has or is developing other streams of income so you are never relying on one to fully support you and your family.
Now that I am doing this I see it as essential and is something we really need to teach our children to help them to be financially secure in their future.
Hi Sean
I would just like to add that what you have written is very important to any trader and this is where a non reactive attitude is a great.
Once we panic our mind has jettisoned out into some obscure and very negative future and our (primitive) fear of not being able to survive kicks in.
We need to stay level headed at all times and not become unreasonable or reactive.