Have we ever thought why most of us sell off our investments during market corrections? Is it because we need the money or is there any other reason(s).
We all must have taken a ride in the roller coaster; when it goes up we feel excited but feel scared when it goes down. It’s the emotion of fear that the human brain is not trained to handle very effectively.
Our mind has one basic instinct to perform; to enable our body to survive. When we come across fear, initially the mind tries to overcome it but if it continues or magnitude of the fear increases, our mind will try and remove the cause of fear.
That’s exactly what happens when we go through the market corrections. As anything going down creates a sense of scare and feeling of fear, initially we try to cope up with it saying it’s just a minor correction and things would return to normal. But as correction deepens and market voices spread further negativity, our fear factor(losing more money) increases exponentially and that is the time when our mind finds it extremely difficult to cope up and will drive us to remove the cause of fear by selling off our investments.
Once we have sold our investments and booked, otherwise, notional losses, we feel a sigh of relief. We no longer get affected by listening to all the negative voices as we have removed the cause of fear of losing more money.
So had we not seen the television or listened to negative voices of so-called experts during such correction times and held on to our conviction, we would have avoided distress selling and booking losses.
It is very important to understand that market corrections are temporary but growth is permanent. Market corrections are always followed by astounding returns. The best phase of the Indian stock market (Apr 2003 till Dec2007) has given 596% of returns in four and a half years despite having gone through several corrections en route. The graph shows it all.
- All previous corrections look like lost opportunity; Present correction is no different, Although it feels this time it’s different.
- Market corrections are temporary; growth is permanent; Hold on to your investments until financial goal(s) is achieved. Switch yourself off from all market voices.
- No one knows when the market would correct, how much will it correct and how long will it take to recover; but what matters is time spent in the market rather than trying to time the market. 90% of the gains in Sensex in the last 39 years have come only during 90 best days.
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