Your Life

Share panic lessons

- March 16, 2016 4 MIN READ
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It’s been a tumultuous start to the year for investors to say the least. Only six weeks ago you would have thought the world was about to end. Commentators were taking to their soapboxes shouting doom and gloom and striking panic into global sharemarkets.

Concerns about economic growth in China were causing commodity prices to collapse… oil and iron ore in particular fell victim to a savage sell-off.

The Chinese sharemarket also had the jitters, spreading panic to other markets. And the world was keeping a wary eye on America to see how the Federal Reserve’s first interest rate rise in almost a decade would play out.

In short, it was a perfect storm… So why are markets suddenly happy as Larry again? It seems every bit of economic news is now being viewed with a more positive spin than the negativity of January.

As commodities have stabilised and confidence returned, those same commentators have returned to their soapboxes to spread a new message of optimism.

For everyday investors, we think there are some important lessons to learn from this rollercoaster ride of the last three months. Here are our five key takeouts.

 

  1. Observe the herd rather than follow blindly

Psychology of markets is just so powerful…. And in times of panic we take comfort in running with the pack. If the headlines are screaming sell, it’s easy to buy into the hype and hit the panic button, particularly for novice investors. But don’t let the hype influence your decisions!

As we saw with the upturn in the markets, things can move very quickly, and in all likelihood the world isn’t actually ending.

 

Remember, even the most seasoned gurus have a hard time predicting the future, so take the hype with a reasonable grain of salt, do your own research and get good advice.

  1. Remove the emotion from your decisions

Emotions cloud your judgement when it comes to investment decisions, whether you’re buying or selling. Try to sever them from your investment process.

A good way to do this is to clearly set out your investment goals and put a long-term strategy in place to achieve them.

Be disciplined with your approach and don’t allow emotional factors to drive your decisions. Emotions can have a tricky way of influencing us into making bad decisions. Investing is no different.

  1. Understand market cycles

Every investment market follows a cycle. The stock market certainly has its ups and downs, but that’s ok. What’s important is that you understand these ebbs and flows and where you are in the cycle.

The stock market, like the property market, goes through cycles, and they can be influenced by many different factors.

Selling at the bottom of a cycle when prices are down means you miss out on the upside when prices recover, as they often do and as we’ve seen this year.

Get to know how they work, particularly when clouds are forming and panic selling starts to take hold – does it align with a trough in a major cycle?

  1. Take advantage of low prices

“Be fearful when others are greedy and greedy when others are fearful”, is one of our favourite quotes from American investment guru Warren Buffett.

Market hysteria isn’t always a bad thing. In fact, in some cases it can be a great time to follow Warren Buffett’s lead and purchase quality shares at a low price.

Trying to pick a bottom for the market is pretty much impossible, but if you can identify good companies at prices that you believe represent value then by the time the market turns around you may have already gained a tidy sum.

After all, to make a profit you need to buy low and sell high.

  1. Ride out the lows

The alternative to finding opportunities when markets are down is to be prepared to ride out the lows. Those that stayed in the market throughout January’s insanity are now reaping the benefits of a recovering market, while those who let their fear guide them likely sold at a lower price.

So the next time the market seemingly starts to panic, remember January 2016 and the market crash that never was. And don’t let your emotions get in the way of your investment decisions.

 

HOLIDAY HOPES

Has the end of the summer season motivated you to start planning your next holiday this year? Or maybe you’ve already got one in works.

Either way, here are three tips to trim the cost.

  1. GET THE BEST DEAL

With flights and accommodation, it’s best to plan ahead and book early to get the cheapest price.

And these days, it’s easy to compare prices for lots of airlines and hotels at once. Webjet, Expedia, Kayak and Skyscanner are some of the biggest comparison sites that can save you big money.

  1. USE A TRAVEL CARD

Overseas banking fees can really add up, but carrying around a huge wad of cash is just asking for trouble.

Prepaid travel cards provide a great balance between minimising fees and improving security, so ask your bank about what they offer. Especially with the Aussie dollar back in the mid-70’s US cents, it could be a good time to stash away some greenbacks on your travel card if you think the currency is headed back down in the future.

  1. GET TRAVEL INSURANCE

It might seem like an extra cost, but in reality travel insurance is the best money you’ll spend on your trip.

If something goes wrong, this could be all that stands between you and financial ruin. So work out your needs and get appropriate cover.

And, as always, shop around to get the best deal.