Dealing with Short Term Losses

Early April showered us with a few days of strong stock market losses. The market lost nearly 5% one day, followed by 6% the next day for a total drawdown of 18% from recent highs. 

When such strong losses occur, it is totally natural for our brains to go haywire. The losses, accompanied by negative headlines, feed our anxiety and can trigger strong urges to get to safety by selling now and asking questions later. 

But following those urges is seldom the best response. A better response is to take a step back regain composure. In my experience, I have found the following four actions to be helpful during difficult market times. 

4 Steps to Composure 

1. Take a break from the daily headlines and constantly changing account values. Instead, focus your efforts and energy on things you enjoy and can control.  Take a walk with a loved one (spouse, friend or pet). Have you tried pickleball? How about baking a gourmet meal from scratch? I think you will enjoy those endeavors much more than looking at Instagram or watching the news.   

2. Ground yourself in a few important and enduring investing truths. 

• Markets are resilient. We have been through much worse in the past and markets have always recovered. 

• Market timing does not work. While selling will bring immediate relief, it can be a costly endeavor as markets move quickly and unexpectedly – as they did on April 9th when ​the S&P 500 surged 9.5% upward. This remarkable rally was driven by the announcement of a 90-day pause on tariffs for most countries, which alleviated investor concerns over escalating trade tensions. 

• Stick to the plan. Markets have always been volatile, but for investors who stayed the course they have rewarded them with significant wealth. 

3. Look for opportunities, especially when items go on sale.  “Buy the dip" is one of our firm’s investment philosophies. This means purchasing assets after a price drop, aiming to profit from rebounds. Benefits include lower entry points, potential for higher returns, and long-term value accumulation during market corrections. Let volatility be your friend not your foe. Embrace volatility as it creates opportunities.   

4. If you are very concerned, contact me – let’s talk about it. No matter your concern, thoughts, questions. Anytime. Whatever it is…let’s talk through things, including the plan and strategy developed. Here is my calendar link when you need anything related to your financial matters. https://calendly.com/promontoryfp 

That’s what we’re here for! 

© The Behavioral Finance Network