Remember it is a well-known fact which the markets are ruled by a couple of human emotions: Fear and Greed. We are going to show you why both these emotions may cause one to make enormous mistakes inside a stock exchange crash and why it makes sense to prepare yourself as a way to avoid making them.
Incidentally, we’re going to talk about a mistake that 85% of persons make inside a market crash and maybe that most of us made in the entire year 2000 which caused me heavy losses. In case you take advantage of this, you’ll be able to avoid financial suicide.
Remember: the wise man not exclusively learns from his own mistakes, but from other people’s mistakes… The Dot-Com Donkeys I shall never forget January 2000 where we had our first taste of dabbling in stocks. Just in case you don’t remember, that year was also the height of a given dot-com bubble. Technology stocks were soaring up and out of your roof and greed had charge of the technology market. Everyday people from taxi drivers, teachers and plumbers were drooling along at the concept of making a fortune in stocks.
We usually had been watching the stock associated with a particular company very closely. Exodus Communications Inc (EXDS) had tripled in value from $20 to $60 within only two months. We where thinking to ourselfes, wow what if this stock now travels to $100, $200 – heck, to the moon! Why would we miss such an opportunity!
We finally bought the EXDS at $65. Now all we oftent had to perform was settle back and watch my trading account get fatter than a turkey before thanksgiving. By March 2000 the stock was slightly below $90. We could not believe our luck. “Good call!” I was just saying to myself. Very soon, my luck misplaced. By April of the particular year EXDS reluctantly visited $50 its not good May it was at $40. Then getting a voice inside head said: “Hey, why don’t we buy more money – now they’re cheaper!” We dug into all my savings and then we spent every last penny on buying more of that stock. In any case, it was actually an “investment”. “Buy low, sell high”, right? Isn’t that what we have been taught? Wrong. By May of 2001, annually later, the stock had plunged to less than $10. It was an 85% drop from the originial and original price we had got it at. Eventually, in September 2001, we was finally lay out of our misery: EXDS filed for bankruptcy.
Fear and Greed!
It is obvious about it. What it is that we did through the year 2000 is usually what “donkey” investors do – also referred to as “dumb money”. The smart money was selling technology stocks and dumping them unto the small guys. This is actually the way the markets have always worked and is going to always work.
Two emotions were ruling the mobile shop:
1) Greed: the urge to make money
2) Fear:The fear of missing out on a huge opportunity Know that this is a different sort of fear than the one affecting investors over the course of market crash: fear of losing money.
The No.1 Bad decision
What I have you understand is the idea that you have to never order a stock (or commodity) just because it is “cheap”. That isn’t a perfectly acceptable an opportunity to buy. What you are essentially doing is hoping to capture a falling knife! Engaging in hurt. This error will often be perpetuated via the misleading phrase: “Buy low, sell high”. This phrase is most often misinterpreted for: “If it has been cheaper then buy it, and market it when it gets more expensive”. That is undoubtedly total garbage. You see, what nearly everybody don’t realise is the idea that each time a stock (or commodity) is falling, the trend and momentum direction of that market can have changed.
I do know what you may be thinking: “What if you really waited a few years for the price to recover – then at least you’ll start your money back and break even.” OK, let’s claim that you are lucky enough that your chosen stock recovers as well as in 36 months it posseses come back to the first price to procure it at. You will have a refund, useful. But you have lost one thing you won’t ever get back: Time. 3 years! During those three years you could really have been shorting that market (earning money downwards), or buying in stocks which were escalating.
Get ready. If we wish indeed heading for another investment crash, and I believe we are actually, you then may encounter management of your emotions immediately! Stocks will make cheaper, and cheaper. In case you hear the voices of greed into your head saying to you: “Hey, on this price, this stock is naturally a bargain!” you are setting yourself for financial suicide. For the bargain hunters, there is just 1 way their story will finish: in tears!