Never Sell in a Panic

The stock market going down is completely normal and is part of the risk you’re willing to pay for as an investor. As the stock market is like a rollercoaster, it has its ups and downs. One moment you’re climbing higher, and the next, a sudden decline makes your stomach drop. 

The S&P 500, which is an index that tracks the 500 largest publicly traded companies in the U.S., experiences corrections regularly, which decline 10% or more. While these drops may feel very frightening, panic selling during them is one of the worst mistakes you can make as an investor. 

Instead of reacting emotionally and panicking, view these market downturns as opportunities to buy stocks at a bargain. Quality companies often trade at a discount during these times because others are selling out of fear of short-term concerns, even if the company’s fundamentals are firm. When fear takes over the market, correlations across sectors rise. Individual companies and sectors will usually not trade based on their fundamentals.

Predicting the future outcome of the market is inconsistent and difficult, even for professionals. Don’t waste your precious time trying to predict the market; you’d be better off spending it doing something else. The majority of the fund managers underperform the S&P 500 benchmark in the long term. That is why time in the market is more important than trying to time it. Even missing a few days can hurt your potential returns from your portfolio. For example, your total return would be reduced by more than 50% if you were not in the market during the 10 best days between 2013 and 2023.

If you had invested $10,000 in the S&P 500 in 2013, you would have $35,000 by 2023. However, without the 10 best days, the total return is $18,000. It’s a whopping $17,000 difference from just being out of the market for less than 2 weeks. Therefore, being a good investor is all about being patient and consistent. Invest early and play the long game.

People have a tendency to pull their money out at the worst times. Buying in at the peaks and panicking during minor downturns, and selling the investments. It’s not a good strategy. However, it’s incredibly common. The key to becoming a successful investor is to control emotions and avoid reacting too quickly to short-term volatility in the market. Sometimes, doing nothing is the best move. Sit back and relax, you deserve it!

Investing is one of the rare fields where someone with little knowledge but a disciplined mindset can outperform professionals who let emotion drive their decisions. Legendary investor like Warren Buffett believes that temperament, not only intelligence, is key to being a successful investor. For example, Issac Newton is undoubtedly one of the smartest men who ever lived, who founded the theory of gravity, laws of motion, calculus, and many more. However, he was also a famously poor investor. In 1720, he bought shares in the South Sea Company. He first doubled the money and regretted selling his shares, buying them back at a huge premium and losing the entirety of his investment.

Albert Einstein reportedly called it the 8th wonder of the world. Start investing as early as you can, as your money can grow on its own. It’s called compound interest. It means you earn money not just on what you started with, but also on the money you’ve already earned from the investment. Over time, that snowballs into a much bigger gain. Even small amounts can grow exponentially if you give enough time. The earlier you start, the more your money works for you.