Investors React To The Selloff: Bargain Bonanza Or Coal-Mine Canary?

by: Rebecca Corvino

In the comments for this week's D&I Digest, a contributor asks a timely question.

How have investors reacted to recent market declines?

Here we collect the responses and invite you to add your own in the comment stream.

Regardless of the reason for the recent selloff in equities, and regardless of its historical significance, it can certainly be disconcerting to see stocks decline seemingly abruptly after we've become perhaps overly accustomed to a steady upward climb.

As investors, we're supposed to check our emotions at the door. Easier said than done, of course. At the end of the day, it can be a useful experience to review our emotional reactions, even as we are trying to rise above them.

To this end, in this week's Dividends & Income Digest: Back To Your Roots, High Yield Investor posed a question in the comment stream:

"How did investors react to February 2018 market decline?"

"It has been two years with low volatility and a relentless market melt-up that created a [complacency] for investors to make easy money. As a dividend investor that relies on the Dividend and Income for retirement I was astonished at my reaction to the largest point drop in the DOW and my stocks melting-down. The news cycle was going crazy with displaying price declines for most stocks and the discriminate carnage," HYI wrote. "I would like to know what the emotional-reaction of other SA members to the latest market decline and compare it to what I experienced."

User boltnuts was the first to chime in:

I shrugged at the declines of the past week. Not based on data really. Seems the economy is doing well and tax cuts will help companies’ EPS. Not much to see here. Bought more yesterday [Feb. 6].

HYI agreed that "the market is better off with some volatility" and wondered if we might be in store for a bit more. "The DOW acted like a ring-oscillator yesterday [Feb. 6], moving negative/positive with each cycle getting smaller," he wrote. "It looked like it was creating a base for sellers and buyers. In a few days we will see if this was the case."

User DividendInvestorLA had a different take:

Inasmuch as that volatility is entirely artificial and only serves the few who create it, I have to disagree. What is now considered low volatility is what was a normal market before all the computer trading that has sucked liquidity out of the market and the massively leveraged ETFs that serve no discernible purpose except increase volatility.

Contributor Investment Pancake was in the position of having some cash on hand to take advantage of the situation:

Every couple of weeks, I check to see how many dividends have come in, and usually I invest the cash I don't need. This time around, I had gotten lazy, so I actually had a little bit of dry powder. I peeked and saw that one of my favorite companies, MMM, was down 6% at one point and I gobbled up some shares. I've been building my position in CHD as well, and was hoping, praying, that the stock would be down. Alas, t'was not. No matter. I generally don't buy stock simply because the price is either up or down, so I bought CHD irrespective of the fact that the Dow Jones was tanking and CHD was not. In sum, my reaction to the market sell off was more or less nothing. I didn't do anything that I otherwise would not have done. Maybe the fact that the price of MMM was off 6% influenced me a bit to buy those shares, but honestly, what I found far, far, far, far, far more interesting about MMM was the shockingly glorious earnings and dividend increase the company announced recently.

As for user geekette, they carried on as usual:

yawned. checked to see if the portfolios I auto-pilot contribute to were at Buy level and they weren't. Went on with life.

What has been your reaction to recent market declines? Did you experience a moment (or several) of panic? Do you see it as a buying opportunity? Or is it just business as usual?

Please chime in in the comments below!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.