Panic or Patience When the Market Feels Like a Roller Coaster


ere are some actual headlines from Monday March 16, 2020:
“Dow tumbles Nearly 3000 Points—Worst Point Drop in History”
“Markets Plunge Falling 12% in Single Day

With our 24-hour news cycle, it’s easy to be distracted—if not panicked—by headlines like this. But, consider what would have happened if you did as many investor opted to do and liquidated your portfolio following these gloomy headlines on Monday.

You would have locked in an enormous loss.

On his Twitter page, Richard H. Thaler, the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics at the University Of Chicago Booth School Of Business, provides the following advice to investors when the market starts to swing: “Inhale, exhale. Repeat. Then watch ESPN

Along with this advice, Professor Thaler, who I had the privilege to study under in business school, provides a chart that illustrates—regardless of how fickle the stock market can be—it continues to grow and those who take a long-term perspective will benefit from that growth—even though is sometimes may feel like a roller coaster ride.

As this New York Times column “How Emotion Hurts Stock Returns” details, the “fight or flight” reflex is one of the most basic human instincts and one of the most powerful. In fact, the average investor feels twice as much grief and regret after losing $1,000 in the stock market as he/she would feel from gaining $1,000 in the market. It makes sense, really—we’re hardwired to avoid danger and risk. So fear is much stronger than joy.

Fear is one of the most difficult emotional traps for the average investor to manage. Keeping your cool is difficult, but vital to your success as an investor. 

Another New York Times writer Ron Lieber, gave his readers some excellent advice When the market is fundamentally sound—but volatile—Lieber recommends the following: “Advice After Stock Market Drop: Take Some Deep Breaths, and Don’t Do a Thing

This is excellent advice. Of course, there are rare times when one should liquidate. The 2008 crash was one of those rare exceptions. That, as we all now know, was not market volatility but a fundamental flaw in the market based on mortgage-backed securities. But, in the absence of an extremely unusual event such as this, being patient is the better part of valor when it comes to investing for the long-term.

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