The stress of today’s falling stock market is palpable, and investors need to understand the havoc it can wreak on the human brain. This according to a recent article by columnist Jason Zweig of The Wall Street Journal.
“To keep it from destroying your long-term investing plan, you will need to manage that stress and restore a sense of control,” writes Zweig, who explains that matters in the current environment are made worse by the fact that many of us are experiencing this stress in social isolation, “unable to be with many of the friends and family who normally help us put events in perspective.”
Zweig points out that current conditions make it even more important for investors to “make sure your decisions will stand the test of time,” and offers the following techniques to help:
- Take charge of whatever you can. Zweig cites comments from Professor Mauricio Delgado of Rutgers University: “When people perceive they have some control over their environment, that simple belief can help them persist in pursuing their goals.”
- Make your mind up about what to do only when the financial markets are closed, to keep other people’s panic from dominating your decisions.
- “Take small steps, not big leaps.”
- If you feel strongly that selling stocks is the best option for you, sell a fixed amount or percentage each month for the next year or so and automate the process through prearranged electronic transfers to eliminate emotion from the decision. Zweig adds, “with guidance from your accountant, you might selectively sell shares that have fallen below your purchase price. That will turn some of your losses into cash—and a write-off on your taxes.”
- For now, direct dividends into cash rather than additional shares.
- Forget what you paid for stocks—rather, consider them as gifts you received and determine whether a fallen price would make you want to return the gift or buy more while it’s on sale. Zweig says, “if rethinking a fallen price this way doesn’t make you feel better, maybe you should sell.”
- Fight the contagion of other people’s stress. Zweig cites Warren Buffett’s tactic of looking at snapshots of his family to calm his nerves.
- Fight social isolation, which makes it harder to regulate emotions. Use technology to create shared experiences.