This week, I’m talking about 5 mistakes that smart investors don’t make in bear markets. 

Today I’m talking about the most obvious, but also the most common mistake investors make in times of turmoil - panic selling. 

When times are uncertain, our fight or flight response kicks in and for those of us who opt for the flight response, when you see that your portfolio is down by 10, 20, or 30% all you want to do is just stop the bleeding. 

The obvious problem when you sell into the teeth of a big drop in your portfolio is that you got out too late and you locked in those losses at the point where you sold. You’re also abandoning your long-term strategy, and most investors wait too long to get back in the market - after the stock market has long-since recovered. I saw this happen with people who got out in 2008. Often, they were still sitting on the sidelines 3 or 4 years later, meanwhile missing tremendous gains in the stock market and a recovery in their portfolio. 

If you’re going to try to time the market, you have to be right twice - you have to get out before the downturn begins, near the top of the market - unlikely, considering you feel like a crazy person for selling at the top when everyone else is euphoric. And you have to jump back in at the bottom. Stock market drops usually follow a consistent emotional pattern and the bottom is marked by hopelessness. We’ve moved past fear, panic, and depression at that point, and have come to terms with the fact that hope is lost. 

Obviously, history proves otherwise, but that’s the feeling. So you have to get out when everyone else is euphoric and get back in when the world as we know it has ended. There are only billionaire long-term investors, no billionaire market timers and consistently making market timing calls and being right is just outside of our human abilities.  Anyone who tells you they can do otherwise is lying and I would run from them as fast as you can. 

So the bottom line here is that by succumbing to panic-selling is a recipe for terrible long-term returns, and the data backs me up on this. Acting on your emotions with your investment portfolio, can drag on your annual returns by 1.5% or more. That may seem small, but that’s the annual impact, so when you multiply that over a lifetime of investing, you could be reducing your total assets by 6 or even 7 figures. 

And that’s why it’s so important that you can keep a cool head in both good times and in bad, but especially in bad times when anxiety, stress, and uncertainty can all lead to panicky decisions. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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