When markets hit rough spots, we see a spike in selling. No surprise there. It's natural; folks sense trouble and panic can set in, so they sell… and then sit paralyzed while desperately looking for a way back in.
Maybe you've made these moves yourself. I sure have. Most investors have, at one point or another, made a decision like this without a clear plan.
But here's the thing – if you sell, or buy, or make any investment decision without a clear plan, you're setting yourself up for steeper losses and lower gains.
But the good news is, with a simple plan like the one I'm about to show you, you can make better (read: more profitable) investing decisions.
And you can do it in two steps. That's it.
When you're done, you'll sleep better, enjoy better gains and fewer losses, and you'll be ahead of a whopping 85% of investors out there…
Investors Can Make Costly Emotional Mistakes
That "85% of investors" I mentioned a moment ago? According to Barron's research, fully 85% of investors who make "sell" or "exchange" decisions are flat-out wrong. Yikes!
The "Cycle of Questionable Decision" typically looks like this…
The market starts to sell off (for any number of reasons), then investors get spooked and sell their stocks right at (or just before) the point of maximum pessimism (which usually is very close to the bottom).
Once they're out of stocks, they take their cash and plow it into safe assets like bonds just in time to miss the beginning of the next leg up in stocks. Once their capital is invested in bonds, they have no idea when to shift back into stocks, mainly because of an emotional bias that leaves them too frightened to take on risk.
If that sounds familiar, again, don't worry – you're not alone. Everyone has made this kind of mistake at least once, including, as I said, yours truly.
We'll just make sure it doesn't happen again.
Instead of using market pullbacks as an excuse to bury your head in the sand and catch up on "Dancing with the Stars" episodes, you can step up your due diligence to create a "Buy List" of your next investment targets.
At first it might seem uncomfortable to be preparing to buy stocks in the face of uncertainty – but don't worry – you're going to be in great company: Warren Buffett, Jim Rogers, and John Templeton all made their fortunes targeting stocks once they were put on sale by market volatility… so let's follow their lead.
Here are two steps you can take that will not only give you an answer to the questions at the top of this article, but will also let you use market volatility to your advantage, which is exactly what professional traders do every day.
About the Author
Sid is the investment community's best-kept secret. Since 2009, he's served at Money Map Press as Director of Research, analyzing thousands of securities and profit opportunities for subscribers. He's an expert in identifying "alpha" potential in a wide variety of industries, but especially the small-cap sector, where he's discovered a pattern of profits that's almost foolproof. In The Delta Factor, Sid uses a single precise trigger that consistently forecasts when small-cap stocks are on the verge of propelling to new highs, making investors potentially life-changing gains in the process.