“You bought Hindustan Aeronautics Limited at 4400 yesterday with the hope of it rising to 4600 soon. But, the next day you got up it was at 4300 with a percentage negative of around 2.27% and it does not seem to stop.
Your heartbeat is rising.
Maybe you made the wrong choice.
Maybe you should have waited.
MaybeYou were wrong.
The market is not for you.
These thoughts plague your mind and the result – you panic sell.
5 days later…
HAL is back. The price is 4600 and now you already booked a loss of nearly 150 per share. You again regret it. “
This is a cycle.
And this repeats every time a market crash happens.
Today I am going to explain the major reasons why investors end up panic selling.
Why do investors panic?
- Lack of Research
They buy a share not because you know about it but because:
- Someone tells them it is a good stock.
- They watch the news and it is a trending share and they feel they can also make money out of it.
- Everyone is buying.
But, then when they find out that the share is falling they don’t have the conviction to hold it because they did not understand the business in the first place.
No Research = Terrified Investors ( even during a small correction).
- Herd mentality
Fear and rumours spread quickly in the market. When the investors see:
- Negative headlines
- Continuously falling market
- Social media panic
- Others selling
They stop thinking independently.
And they buy near the top and sell near the bottom.
No Independent decision = Wrong Decisions
- Unrealistic Expectations
They buy a share with the expectation for it to rise immediately. But markets don’t move in straight lines. There is no share of a graph that moves only upward.
Short-term volatility is normal – even for fundamentally strong companies.
Unrealistic expectations = Lack of Patience
- Emotional Decision Making
Emotions control the mind instead of the mind controlling the emotions. But, successful investing requires emotional control.
But, during market falls, what controls them
- Fear
- Regret
- Self-doubt
Logic goes out of the window. In fact the Research at times is all forgotten.
Emotional decisions = Panic Selling
The market is a place where prices move up and down in seconds. It is volatile and no matter what an investor does, he or she can never be 100% sure.
The investor needs to remember- Market corrections are temporary. But, the emotional reactions by them make their losses permanent.
Thank you for Reading – Isha Singla(About)
If you are and want to understand why do share prices go up and down everyday- Read This
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