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Don't let panic get the better of you and your investments… Here's how

by , 17 September 2015

Panic on the stock market is a horrible feeling that hits investors. It leads them to make irrational decisions about their investments, usually with dire consequences.

To deal with this type of panic, you need to understand it. And you need to have a strategy to cope with it.

Read on to find out more…


There are two types of panic that hit investors


Panic type 1
This type of panic hits when stocks fall sharply on heavy volume. You may think this type of panic investors display is due to a sell off fuelled by emotions.

But look at it another way, Porter Stansberry in Daily Wealth explains. This type of panic is due to investors selling because they’ve made the decision, no matter what’s happening with share prices. Investors realise they’ve made wrong decisions with their money and they’re taking steps to put it right.

To stop falling victim to this kind of panic, you need to ensure you have a diversified portfolio. And use your trailing stop losses to tell you when it’s time to sell.

Panic type 2
The second type of panic is the one that causes investors to do nothing. They can’t make any decisions. This inaction can have terrible consequences.

For example, after the financial crisis in 2008, not being able to take advantage of lower stock prices due to fearing what may lie ahead.

To prepare for this, you need to make a list of the stocks you want to buy when their prices are down. You can’t time this perfectly, but you can get your hands on great stocks at good prices.


How to take advantage of panic


If you want to take advantage of market panics, use the following rules of thumb…

  • For the best companies on the stock market, look to buy when their share prices are down 20%.
  • For good companies, look to buy when their share prices are down 30%.
  • And for speculative companies, look to buy when their share prices are down 50%.

By not taking advantage of panic, you’ll find it hard to achieve your financial goals.

So there you have it. How not to let panic get the better of you and your investments.

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Don't let panic get the better of you and your investments… Here's how
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