Panic Selling, Panic Buying

The worst thing one can do is to sabotage their own financial plans by engaging in the senseless behaviour of panic selling and panic buying. The recent financial turmoil arising from the subprime crisis in the US has unnerved many investors. Just months ago, many investors were still looking at increasing their investments for fear of missing out on the attractive returns that were being dangled by the various well performing stock markets.

Why is it that we find it so much easier to invest our money when markets have headed up significantly and find it so difficult to invest our money when markets are depressed and downside is limited?

Much research had gone into analysing such investor behaviours and it largely boils down to panic buying and panic selling.

When markets are on an uptrend, the good news abound and money appears to be readily available on the tables for anyone willing to reach out for it. Investors are afraid of losing out on pocketing the potential profits with each day's delay. Speculators rush into the markets in panic buying and all sorts of equities, blue chips or not, rise across the board. Yet, when stocks are chased to sky high valuations, not many see the warning signs that whatever goes up must come down, and continue to pour cash into these already risky investments, priming themselves for major losses once the market corrects the excesses.

When the market inbalances start to even out with corrections, people rush to liquidate their investments. Granted, this is sensible behaviour for the protection of the value of the assets will enable one to re-enter the market at a later date. The problem perhaps, is knowing when to re-enter the market. When is the best time to invest again?

Panic selling results in stock valuations falling below their reasonable valuables and once investors have confidence that the valuations are extremely compelling, it should be a good time to start investing in the market again. No one knows when exactly stock markets bottom and neither will anyone know how long bearish sentiments will prevail. However, one thing history has shown us - After a period of negative sentiments and stock prices had been depressed, it is only a matter of time before stocks rebound. As long as time is on the investors' side and free cash is not being earmarked for any use in the short term, it is better to bargain pick some fundamentally solid stocks and hold on to them.

In each investor's lifetime, it is expected that there will come various opportunities whereby the market is put up for sale at fantastic bargains. The major market crashes like US Sub-Prime Crisis in 2008, SARS in 2003, dot com bubble of 2000, Asian Financial Crisis in 1997, Black Monday in 1987, Wall Street Crash in 1929... all presented superb opportunities for the brave to go against the panic selling of the masses. Investors should be rational about investing in the stock market. When the upmarket departmental store launches an exceptional sale, people rush in to grab all sorts of merchandise. When the stock market falls to extremely depressed levels, people are avoiding the market instead of picking up good discounted shares that will bring much happiness once the financial storm blows over?

In the stock market, money is not made by following the crowd. Panic selling and panic buying is not going to help grow the investment portfolio spectacularly. Exceptional returns are only available to those who are able to see beyond the fears of the common investor. Who dares win.