Did You Panic And Sell Your Stocks?

We are not out of the woods yet but the stock market has bounced back from its lows two months ago. Things were admittedly scary from the middle of August to the end of September. A solid five weeks of high volatility with the strong bias to the downside - enough to make an investor of any experience level sick.

It is times like that where you really have to dig deep and make some decisions. Are you a long term investor who trusts that the market will bounce back with time. If so, do you have the conviction to wait things out? Or are you losing too much sleep to hang on to your stocks and feel better selling?

Many Investors Make This Mistake

Too many beginner investors have that get rich quick, make money now gleam in their eyes. They lack patience and have a very low tolerance for risk. They think/hope every stock they buy should go up right after they buy it and when that doesn't happen they get frustrated. Most importantly though, they panic easily and sell at a loss way too often.

In a market correction like we just had (are having), many of the weak investors get flushed out of their stocks. They can't take the pain of losing money and they sell, most often for a loss. To put it very bluntly, these are the people that perhaps shouldn't be in the stock market in the first place. 

That's a hard generalization to make but it is true because any time the market goes steadily up for a long period of time like it has since 2009, many people buy stocks because they think it is easy money. They hear about this or that stock in the media, from friends, or somewhere online and they get excited about stocks but they don't do any research. They never learn how the stock market works and never fully comprehend what they are doing.

Short Term Investors Often Lose And Quit

Many of the "investors" who just panicked and got flushed out of the market will quit and never come back. They will think it is too risky, that it is all rigged against them, that it is just gambling, and/or that it is way too hard for them to ever understand. They are likely frustrated and many will stay away for years or even for the rest of their life.

Now that they are gone, the market is slowly coming back. But they are out. Their losses are booked and they have lost. They never made the effort to try to understand what makes a successful stock investor as they were, undoubtedly more concerned with the short term gain they thought they could make. They never bothered to take the time and realize that stock investing is hard. There is a lifetime of profits out there for those who are a little less short sited.