Stock market drops: the art of digesting losses
When a portfolio loses €2,000, panic mixes with strategy. Key tips to tell investing from gambling, and how to manage fear.
English · Original discussion in Spanish · Published
Stock market drops: how do you digest a 20% correction?
When a portfolio loses €2,000 in a few days, panic sets in. Reactions range from "what the hell" to "it's an opportunity". But between the scream and the calm lies a difference that separates the investor from the speculator: preparation.
The line between trading and investing
Being a trader is not the same as being an investor. The trader buys shares hoping they will rise; the investor buys companies convinced they are worth more than their price. When a good company falls 20%, the investor should be happy and buy more. The trader, on the other hand, should have a stop loss and get out. The problem is that many only call themselves investors once the losses pile up zeros.
An antidote to anxiety
Some veterans apply a drastic remedy: change their broker password to a very long one, write it down on paper and keep it in a safe. They only log in once a year to file their tax return. That way volatility doesn't rob them of sleep. Others focus on dividends and look for entries during dips, without opportunistic trading. The infallible test, they say, is to ask yourself: if it falls, do I want to buy more? If the answer is yes, it's a company for the long run.
The figures that put antiestéticar in perspective
A fact that puts things in perspective: swings of thousands of euros a day are common in portfolios worth between €200,000 and €300,000. If you can't accept that, don't invest in equities. And if a specific position falls 20%, it had better be a company you understand and are happy to own at bargain prices.
The next time red floods your screen, the question is not how much you're losing, but whether you know what you own.
Related discussions in the forum
When a portfolio loses €2,000 in a few days, panic sets in. Reactions range from "what the hell" to "it's an opportunity". But between the scream and the calm lies a difference that separates the investor from the speculator: preparation.
The line between trading and investing
Being a trader is not the same as being an investor. The trader buys shares hoping they will rise; the investor buys companies convinced they are worth more than their price. When a good company falls 20%, the investor should be happy and buy more. The trader, on the other hand, should have a stop loss and get out. The problem is that many only call themselves investors once the losses pile up zeros.
An antidote to anxiety
Some veterans apply a drastic remedy: change their broker password to a very long one, write it down on paper and keep it in a safe. They only log in once a year to file their tax return. That way volatility doesn't rob them of sleep. Others focus on dividends and look for entries during dips, without opportunistic trading. The infallible test, they say, is to ask yourself: if it falls, do I want to buy more? If the answer is yes, it's a company for the long run.
The figures that put antiestéticar in perspective
A fact that puts things in perspective: swings of thousands of euros a day are common in portfolios worth between €200,000 and €300,000. If you can't accept that, don't invest in equities. And if a specific position falls 20%, it had better be a company you understand and are happy to own at bargain prices.
The next time red floods your screen, the question is not how much you're losing, but whether you know what you own.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (48 replies).
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