Thursday, August 16, 2007

Stock market go up and down

We all know that stock markets are constantly moving up and down. Over many years history has shown that markets go through cycles and the current volatility is a normal part of the investment cycle. This means that markets sometimes move down as well as going up.

Panic selling and buying in volatile times has been shown to be one of the worst strategies a person can use.

As we know, what happens in one market influences another, hence the term “when America sneezes the world catches a cold”. The problem is that human emotions can all too easily magnify the effect. Sentimental opinion is based on what people think will happen, as opposed to what really might be. Bad news in one part of the global market leads people to expect similar bad news in their own local market. This then causes them to start selling stocks irrespective of whether the problem is relevant to their market and so it goes on.

Remember why you invested in the first place. If the investment looked good then has anything really changed? Has your time horizon for the investment changed? Don’t let it be fear that makes you sell.

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