WHY BEGINNER INVESTORS OFTEN PANIC WHEN STOCK PRICES FALL
A sudden drop in stock prices can be a particularly uncomfortable experience for a novice investor, as it creates a feeling of tension.
A sudden drop in stock prices can be a particularly uncomfortable experience for a novice investor, as it creates a feeling of tension.
Even a drop of just a few points can spread extreme panic. This panic often stems from basic mistakes made unconsciously at the beginning of investing.
I've discussed this in another article on mistakes novice investors often make when starting to invest in stocks.
Panic arises when someone isn't mentally prepared to withstand price fluctuations in the stock market.
Natural Fear of Loss
Psychologically, everyone is more sensitive to losses than gains. Let's face it, the fear of financial loss is often stronger than the joy of profit.
This is why falling stock prices can be detrimental to a novice investor's mental well-being.
Lack of Experience in Dealing with Volatility
Experienced investors know that falling stock prices are part of the market cycle. Unlike novice investors with little experience, falling stock prices are a warning sign of imminent danger.
Without experience, their imagination often works more proactively than logic and common sense. Stock prices are the same as self-worth.
Most novice investors, without realizing it, tend to associate stock movements with their own abilities.
When stock prices drop, they assume they've made a very foolish decision. Such feelings can lead to excessive emotional stress and ultimately lead to hasty decisions.
How to reduce panic
Having an investment plan before buying shares is an important step that can reduce panic.
This plan will help investors remember the initial reason for buying a stock and not react to momentary situations.
Also, limiting the frequency of checking stock prices is also very helpful and can provide reassurance.
This is part of emotional management, as I have also explained clearly in another article, why emotional management is more important than stock analysis.
Treat price declines as a learning process
Instead of labeling them as threats, stock price declines can actually be a learning opportunity.
We can conduct a more thorough evaluation to determine whether the price decline is temporary or due to fundamental company reasons. With this correct perspective, we can gradually transform panic into understanding.
If we manage this panic effectively, one of the main causes of investor losses can be avoided. I've detailed this in a previous article, explaining why do many beginners investors lose at beginning.
Tags:
ECONOMIC AND BUSINESS