What is the normal thought process when the stock market is exploding upward? Buy, Buy, Buy! If I don’t buy now, I am going to miss this run up. Unfortunately the average investor waits until the market has gone up to the point that it is due for a correction when they are buying. The most difficult thing to do is to sell when the market or a stock is high.
On the contrary, the other most difficult thing to do is to buy when all the news is bad and the world appears to be coming to an end. When the market implodes, as it has done this week, the natural tendency is to get off the band wagon and sell. Usually this means that you are selling after a substantial correction and you are selling at a low point. Then when the market has recovered substantially, you gain the confidence to buy again. This is a formula to assure yourself of losses.
A good investor will do the opposite and buy when the news is bad and sell when the market appears euphoric. I am not advocating timing the market, but let’s face it, to some extent, people do try to time the market and this is their normal tendency.
If you did not sell prior to Monday, it is probably too late and you may want to be identifying targets to buy, especially if the market declines a bit more.
Contact Richard Taylor for additional information.