Top 3 things you should never do in a market sell-off

By | February 8, 2018

Lots of things has happened in the past 1 week of February:

  1. Falcon Heavy was successfully lifted to the space – starman and the Tesla Roadster is traveling lonely in space listening to Prince’s Space Odyssey
  2. Twitter became profitable (finally!)
  3. 10-Year Yield rose to 2.85%
  4. XIV was “terminated” by crude hands of Credit Suisse
  5. Oh, Equity markets were sold off about 10% or so

For one day, around lunch time, I received some inbound inquiries about what should we do. Based on my over 15 years of experiences in equity markets below is a list of Don’ts

  1. Don’t sell your positions (lock your computer, grab a drink, buy a ice-cream, listen to some music. Just don’t log into your brokerage account)
  2. Don’t get stressed out (unless you have high portfolio margin, which you should not have done anyway, however, if you do, and the account is close to being margin-called, and if you think you have money to save it, it won’t be a bad idea to pump some spare cash into that account to avoid a forced liquidation) – one thing worse than watching a stock market falling, is that you are forced to sell your positions into the slump.
  3. For 99% of the people out there, don’t try to buy in such market. Unless you have done your detailed homework and know what price level makes the purchase a great bargain, chances are the stocks valuations after such a long bull market climb are not considered “cheap” even after a steep sell-off. Again, if you are not sure, hold you cash and take a hike (or take a nap).

Follow the above three rules, you will come to thank me later when market rebounds.

One extra tip: for inexperienced investors however, who wanted to select individual stocks, one quick tip never going to hurt is to religiously follow two rules:

  1. never buy in a up market
  2. never sell in a down market

even it is one day difference. you may emotionally survive better. But it is not a sufficient condition (also not a necessary condition) for a successful stock picking operation. (but it helps).

Good luck everyone. And this sell-off is not over.

(by the way, we liquidated about 25% of our position in January, so we are holding 25% cash going through our valuation models to find which one to load up from the wreckage =)).


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