Recently, the US market tumbled due to the increase of interest rates followed by the big dip in Asia market and Europe market as well. All the investors seemed to be in panic and the sell-off continued. Today, we saw signs of recovery with the boosters from the earning reports from a few giant companies from financial sector; however, the gains didn’t last long and again were capped by the fear in investors. People are guessing that the next economic crisis is coming but I personally don’t think that it will be an economic crisis; in fact, it was just the over-reacting effect by the investors.
When people see the dip, they are easily getting themselves in fear, and they sell off. What happens next? The markets sink more, people continue to sell more and the cycles go on. It would not happen in just a region as the effects are synergistic and that’s why we can see the Asia market most of the time is affecting by the performance in Wall Street the day before. The same goes to the Europe market which opens later after Asia market.
So another question, but how come the recovery is capped? When people start to see green, they try to buy in order to get themselves involved in the ride. When the markets rise to a certain level, people are trying to take profit to prevent any unexpected drop as they are still scared of the previous sudden dip. When profit-takings come in, the gains are capped and can even reverse.
Therefore, mentality is a lesson that should be learnt by all the investors especially for long-term stocks investors and those who believe in the principle of “value investing”. A good mentality would be the key to succeed in the world of investment. People are just too easy to get panicked and they forget why they buy the stocks of the company in the first place. We buy the stock of the company not because we read the news that one of the Wall Street analysts rated the stock as a “strong buy” one. We buy the stock of the company because we believe in its business model that would probably bring profits in long term. We should not expect the stocks to skyrocket in just a few days time, and should not sell them just because the stocks are down for a few consecutive days.
“Don’t get feared by the plunge, and don’t get greedy of the rise.” To be able to profit from the stocks trading, you have to buy during the dip, and sell during the rise, but not sell during the dip, and buy during the rise. If you emotionally sell when you see red, and buy when you start to see green, you would never become an intelligent investor. It is a simple principle and many people do know that, but rarely we can see people with a good mentality to apply the principle. This is because we are human, we tend to get feared, that’s why we have to learn the lesson, not only for investment, but for pursuing our dreams as well.
As a long term stocks investor, I always remind myself to aim for the future but not the temporary price difference, preventing myself from being masked by the “fog”.