By Craig Erwin, Ph.D.
One night, years ago several couples were having dinner at our house. I was surprised to hear nearly all the men express alarm over the recent stock market tumble because it had been years since I had heard anyone mention the stock market at a gathering. Markets were having an especially turbulent year-end, with a brutal December sell-off. CNN reported that it was the worst year for the stock market in a decade. One guest, who was approaching retirement, appeared quite worried. I thought this odd because he didn’t have any money invested in the stock market. Still, if worried enough, he might do something rash.
Clearly many were worried about the market’s nose-dive. But what they saw as a threat might just be an opportunity. When people are fearful and they just want to get out of the stock market, no matter the cost, it is often a great time to buy. When everyone panics, bargains result.
When house prices rise sharply year after year and everyone is wildly optimistic, making a fortune flipping houses, house prices may soon fall, quickly and violently. But after house prices have fallen sharply and just keep falling, and everyone is terrified that prices will never stop falling, it’s probably a pretty good time to buy.
Following the crowd and allowing emotions, not facts, to drive your decisions, is a road to trouble. When everyone else overreacts and panics, stay calm and avoid doing anything impulsive. Doing nothing may be best; it often is.
The next time everyone around you is screaming that the sky is falling, take a deep breath, ignore all the craziness, and consider whether the current crisis requires any response from you. It probably doesn’t.
Do your emotions often get the best of you? Have they cost you money?
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