Much of the recent panic of stock market sales stems from a number of factors, including Standard and Poor’s downgrading of US debt from triple-A to double-A plus, slow-moving economy, high unemployment rate, financial problems in Europe and, of course, our dysfunctional government.
It’s no wonder markets are in a volatile state with wild market swings changing from moment to moment. It is enough to scare any investor and cause anxiety and mistakes when making poor investment decisions.
It is strongly recommended that an investor create a stop loss strategy that monitors share price movement and issues price alerts when a stock, mutual fund, or exchange-traded fund encounters a preset price alert.
There are many investment software programs that track and monitor investments along with price alerts. You can also create your own with Microsoft Excel or, if you prefer a free alternative, try the OpenOffice spreadsheet program.
I produce a report that monitors specific stocks and points out potential problems, as well as when a stock or mutual fund reaches a preset high alert. There are three levels that trigger an alert.
- 10% alert if price is below cost.
- Sale alert if security falls below a pre-set percentage.
- Maximum alert if the price movement advances upwards.
If a high alert is triggered, I move the other two alerts up to protect my earnings and reset the high alert as well.
In the event of a total market meltdown where the overall market is moving sharply lower, even if stocks hit sell price alerts. I cannot sell if the stock in question has a strong balance or pays a dividend greater than 3% and that dividend is safe.
It’s true that these quality stocks can drop significantly like they did in the fall of 2008, hitting a 45% or more drop, but they rallied very well once the market started to rally.
I would recommend selling if a specific stock falls to a selling price target if that company is speculative, does not have a strong balance sheet, or high dividends to sustain itself during a market downturn.
In a bear market, if I have strong companies, especially those with a long history of paying dividends, I prefer to retain and collect the dividends rather than sell the shares and allow the profits to be deposited into a very low money market account. . Trying to time the market and re-enter is extremely difficult, and in most cases, investors lose most of the appreciation once the market turns.
The most important lesson is not to panic during volatile market fluctuations and to keep a cool head.