Avoiding the Cost of Panic

Investors lose massive amounts due to panic selling in down markets. More can be done about this perennial problem.

This article identifies one critical action that can be taken to stem panic-driven losses. That action is based on a full understanding of the timing, cause and prudent use of financial instruments that can avoid much of the loss.

To appreciate the solution, it is essential to agree on what the problem really is.

Understanding the problem

Understanding begins with knowing when the losses occur.

More than 70% of losses over the last 35 years originated in 10 very short crisis periods. Those crisis-period losses were then compounded in succeeding years because the loss lowered the investment during the crisis periods.

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