Blog : Too Late for Panic

September 17th, 2008

In this very uncertain and negative market, traders may want to sit tight.

Although most people are getting spooked by the collapsing stocks around them, it is important to remember that the panic has already set in. Selling pressure has already done most of the damage that it will do.

It makes a lot of sense for investors to panic and sell their shares only if they are at the front of that wave, because then they miss most of the fall. However, what doesn't make sense is to bail once the shares have tumbled so dramatically.

Exiting your positions now simply locks in your losses. You'll find that historically, when investor sentiment was at its lowest, and panic had already set in, that stocks performed exceptionally well from that point on out.

In other words, just about every sector is oversold, and prices are reflecting some pretty strong values among well run companies that have solid fundamentals.

Yes, there are major economic concerns. Russia's stock markets were closed early today, as their indexes plummeted. Besides gold roaring higher, just about everything else fell off a cliff.

There is also the potential for a major, world-wide economic meltdown, which seems to be closer at hand each day.

However, you need to remember a few things:

1. Investor sentiment is a contrarian indicator. The more people expect the market to fall, the more likely it is to rise (and vice versa). This has been proven out dozens of times throughout history. Right now investor sentiment couldn't be much lower!

2. Warren Buffett gives some good advice: "buy snow shovels in the summer, and tennis rackets in the winter." If you are a buyer of stocks right now, you are going to get some stupid deals, because nobody wants their snow shovels right now. Just wait until it starts snowing this winter, and watch how smart you are going to look.

3. At Peter Leeds Penny Stocks, we will continue to do what we've always been doing, which weathers economic turmoil very well over the long haul. We'll find really fundamentally strong, well run companies that have proven business models and strong management teams, and we'll hang on through tough times and good times alike. Over the months as they execute on their business plans, the companies, and therefore their shares, become worth more and more.

It's tempting to dump all of your shares on a day like this, and in times like these. However, it might not be a profitable idea. Bailing a week ago makes sense. Jumping ship now might be a lot like leaping from an airplane just before it lands safely on the tarmac.

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Blog : Too Late for Panic