Investors have a bad habit of doing the wrong thing in the wake of sharemarket lurches such as the one we are experiencing, basing their reaction on gut instinct rather than logic.
Newspapers will blare “billions wiped off markets” and nervous investors will obey their overriding nervous sentiment and sell. “Australian shares lose $57 billion” came up on ABC news and that will be one of many such lines.
“Bloodbath for sharemarkets” was another.
Because he’s always got a well researched list of the stocks he wants to buy, or in most cases buy more of, he’ll just add to his company Berkshire Hathaway’s holdings. He is happy to call himself a value investor so he’ll be buying into what might well be an avalanche of selling, and more or less choosing his price.
That’s not always easy for the rest of us mere mortals. Another common saying is that it’s hard to catch a falling knife, which is a way of looking at markets that are dropping.
Where will they bottom out? You’ll never know in advance. To use another old phrase, no one ever rings a bell.
The biggest Australian losers in the 2008 Global Financial Crisis were the retail investors who shouted “sell” while markets were wobbly and greatly favoured buyers over sellers, and then subsequently sat on their hands as markets slowly recovered.