Stay Calm and Rational During This Selloff

There is a lot of news swirling around about various central banks injecting liquidity including the Reserve Bank of Australia which also raised its rate this week.

Ashraf Laidi from CMC Markets said on the show Foreign Exchange that this is worse than 1998. If that is correct we should brace for a lot more equity selling. I have to say I don't know if it is worse than 1998. If it compares to 1998, well we have already had one of these and so while there might be more selling, might there be a faster snapback?

In terms of managing emotion, for anyone feeling emotion, this is a fast decline. People worry during fast declines and don't worry during slow declines. The nature of fast declines is they snap back quickly. We saw some of this earlier this week and I think we would see more snapback whenever this round of the selloff exhausts.

I repeat this sort of thing often because it always seems to be true and also to try to convey the extent to which this sort of trading is normal market behavior that has happened many times before and will happen many times in the future. I also try to convey my lack of emotion during all types of market moves. I think that my remaining unemotional and showing this over and over might help some folks be less emotional too.

In managing your own portfolio, calm and rational is probably the better way to go. Hopefully you have some sort of trigger point for some sort of defensive action and all you need to do is stick to it, this is also something I repeat over and over.

No matter what you think about this, it has happened before, been worse and come back.

Comments

[Al Capital:]

The key to managing ones emotions during times of market churn is an understanding of what is going on. Then you can decide how to respond to risks and opportunities.

mnrtrading.blogspot.co...

2007 Aug 10 12:25 PM

[Leo Surprenant:]

The best advice that I can give is to sell off all your stocks if you have not. Once the market comes back, is your chance to get back in to the marke and get back what you may have lost.

2007 Aug 11 02:53 AM

[irondoor91:]

Dear Mnsurprenant,

Do you have a definition of the point where the market has "come back"? Do you have a precise price at which you will sell each of your stocks? Do you have a list of stocks that you will buy, and how much you will invest in each of them and at what price when you think the market has "come back"? Do you know exactly at what price point you will sell each of those stocks if you are wrong and the market falls again?

Did you ever think of going short those stocks that you are considering selling now? I assume that you will be selling them because you think they are going further down. If so, why not make some money on the decline? If you do short them, do you have a buy stop price in mind? Then what?

Do you begin to see the benefit of having a plan or a system rather than "sell and get back in when the market comes back"? It does take some work.

2007 Aug 11 11:57 AM