So, it’s September as of the writing of this article and seems the most appropriate time to talk about the value of not panic selling. Right now, as it is the majority of the time in the month of September, the market is falling quite a bit. I can only presume it’s a human nature thing at play, but for whatever exterior reason, people panic sell in bunches driving the market down. Right now (9/20/2021) it’s mostly fear due to the Coronavirus pandemic and partly to do with things going on in China, but nothing directly to do with the majority of companies viability and financial standing.
Therein lies the key. The companies are still doing great financially, but the stock value is dropping for outside reasons. When that happens, not only is it a good idea not to sell, but it could be an even better idea to increase one’s holdings while the stocks are pretty much “on sale.” This is mainly true if you’re a long term investor. Obviously if you’re a day trader, it’s a whole other show of constant buying and selling, but in the long term… conventional wisdom is to hold on through the market drops as historically, it always rebounds back up eventually. That’s where buying on the drops can make those rebounds even more fruitful. I know it’s painful and a little scary when you see your gains blown away or even your core investment bottom in value…. It happened to me starting out as I’m sure it has with everyone at some point. There’s always going to be gains and losses, but if you’ve invested wisely, you’ll see more gains than losses making it easier to weather these drops in time.
All that said, there are times where selling is a very good move as well. If you’re rebalancing your portfolio or trimming down total holdings. If a company looks like they’re financially in trouble, then of course you may want to seriously consider selling unless you have a lot of faith in a turnaround… which I have seen happen! Then of course there’s the scenario of just needing the money at a particular time, but the key thing to remember is not to sell on fear. You’ll be a lot happier when the rebound kicks in.
A couple of charts below just to show how the market always trends up in the long term.
S&P 500 90 Year Chart
Dow Jones 100 Year Chart