| The wild roller-coaster ride that stock markets have investors on has caused many to react more out out of fear rather than logic. As the market volatility continues, so will panic selling, experts predict.
Panic selling is a widescale selling of an investment, which causes a sharp decline in prices. Specifically, an investor wants to get out of an investment with little regard of the price obtained. The selling activity is a problem because the investor is selling in reaction to emotion and fear, rather than evaluating the fundamentals.
Meanwhile, that drop scares other investors into selling, which causes prices to fall still further, which frightens more investors, and so on. The resulting panic can erase vast amounts of wealth.
Panic selling often happens during stock market dips, and those who dump investments may later regret their decision, experts warn. A major reason you shouldn't panic sell is that those who leave the stock market and don't re-enter miss out on the recovery. In fact, the best returns often follow some of the biggest dips.
A major issue many investors face is actually getting back into the market after a "freak out," according to research from the Massachusetts Institute of Technology. To that point, more than 30% of investors who panic sold assets after previous downturns never got back into the stock market, as of Dec. 31, 2015, according to the MIT report.
In many cases, financial experts say, looking at a company's true value, profits and track record will prove that there was no need to panic sell at all.
Ironically, panic selling actually creates great buying opportunities for well-informed traders and investors. Those who know when the selling is over can benefit from the retracements/turnaround that often occur afterwards.
For more cool stuff like this, check out CNBC's Financial Advisor Hub and CNBC + Acorns Invest in You: Ready. Set. Grow. |
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