There was a time I thought that investing was common sense – buy low, sell high – right? Buying your securities when the price is low and selling them when the price goes up and is high will insure you make a profit. Well a few things like watching how societal events effect the market, working in the financial industry and learning a thing or two about human emotion are some things that have contributed to me having a change of heart about how easy and smooth investing is.
Last week we watched market volatility increase due to both societal effects and human emotion. News of the global spread of the coronavirus continued, travel restrictions increased and many large companies such as Disney, McDonald’s, Hilton and Apple, to name a few, announced temporary closures in China. Understandably, a combination of uncertainty of the disease and business reactions sparked fear amongst investors and therefore a strong reaction in the global markets. We saw markets trade down in record numbers over the week as investors feared losing their hard-earned money causing more selling off than buying and as a result a decline in the market.
As investors increasingly panicked and sold and the market continued to decline, we began to see more and more people selling low as opposed to waiting and selling high when they can make a profit. Alternatively, what we will find once this virus has passed over, travel restrictions have been lifted and as business begins to resume as normal investors will once again begin to trust the markets and start investing their money again. Now, as shareholders gain more confidence in the market, they will begin to increase investing, security prices will be on the rise and we will begin to see people paying the higher market prices for those securities they feel comfortable purchasing again.
While the coronavirus pandemic is daunting, this is just one example of how what is happening in society triggers our emotions and in turn effects how we manage our money. What I thought was a simple notion – buy low, sell high – can effectively be a little more complicated and challenging to implement than it sounds.
There will always be events that will spark fear and lack of confidence in the market which in turn can effect the volatility of the market and how you’re investing. During those times, stay true to your investment goals and remain steady and objective about your trading instead of reacting to market swings. If you’re tempted to abandon your goals and sell when markets are down, give yourself a waiting period, like a day or two, remove the emotion from your decision and think objectively about your next steps. Weigh the odds of reacting to the market or sticking to your purpose and long-term goals. Just remember that we have always moved past those horrid events of the past, like the market crash of 2008. Our nation survived that time and those who remained steady were able to recover.
