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Choose your language. I write in English, but I translate many of my articles to Czech as well. Zvolte si jazyk. Píšu anglicky, ale řadu svých článků překládám i do češtiny.

I Like Stock Market Panic And Crashes

What have three years of trading securities and studying financial markets given me? I’ve learned to look beyond panicking mobs and welcome dramatic falls.

When massive panic hit the financial markets back in 2008, I was confused. Having spent a few months learning about investing, I had just bought my first stock. The value of my investment was plunging by tens of percent and the media screamed about sell-offs, crashes, losses, historic lows, and panic in the markets.

Being new to the world of finance, I got convinced that every drop of an index or stock price is automatically a bad thing.

I’ve gone a long way since then. Today, I see panic-driven sell-offs as perfect opportunities.

During the recent August falls I made a few long-term investments for myself and my girlfriend that make me smile every time I think of them. The concurrence of bad news from the USA and Eurozone sparked a panic that was promptly fueled by media and drove the prices so insanely low that I couldn’t believe my eyes. I was hungrily waiting for more and more negative moves and actually started to love those blood-red downward arrows that brought undreamed-of bargains with them.

Sharp drop of stock market index Terrifying fall? Wonderful opportunity?

Truth is, sharp falls are good headline material. Media love negative news, and the deeper the red numbers go, the better. However, markets often overreact, and irrational sell-offs hit securities regardless of their true health.

Of course, it is essential to tell an unjustly undervalued stock from a business going down the gutter. Buying anything that seems to be “too low” and “soon must rise” is a sure way to go bust. If a stock drops from 1000 to 500, it can also go from 500 to 100.

The idea is to see farther than the panicking mob and trust your common sense. It often pays.

September 8, MMXI — Finance, Life Lessons.