Don’t panic, don’t sell

The COVID-19 pandemic has taken a toll on our stock market but I will provide you with a “trader’s tip.” I know the markets are tumbling into double digit losses, but I must remind you that you haven’t lost anything unless you sell — so don’t panic and do not sell.

This is exactly what people did in the 2008 financial crisis, only to wonder when to get back into the market when it began to rebound. During that time, many investors cashed in their portfolios in a panic sell that we are now once again witnessing.

In the past, this behaviour caused investors to lose thousands in hard-earned capital when they cashed out, only to turn around a few months later to buy back into the market as it began to climb — of course, at much higher stock prices.

In the past two weeks we have witnessed a

20- to 30-per-cent drop in some sectors, with unexplained one-way moves and huge intraday volatility. While we know that our strong businesses will eventually lead us out of this recessive momentum, that change can’t come fast enough to quell the panic. And even as we begin to see traces of the fear abating, the collateral damage is still substantial.

So, if you are looking to invest in this volatile market, resist the urge to try and time the entry. This is virtually impossible and extremely difficult even for the most experienced traders. If you do decide to buy in and your portfolio goes down further, just leave it. It will come back up. Often, going in and out causes more stress and leads to actual losses.

Here is your trader’s tip: The best time to buy in to an unstable stock market is when you have three full consecutive days of increases. This will mark a shift in the sell-off momentum, and although it may go down a little later, it is usually viewed as a sure sign of improvement and recovery.

Christine Ibbotson is author of Don’t Panic: How to Manage Your Finances and Financial Anxieties During and After the Coronavirus and How To Retire Debt Free & Wealthy.