...its about not panic selling and I want to put this to the test This Is Why You Don't Panic-Sell
By Brett Eversole
Finding good investments isn't the hard part... The hard part is not screwing up.
That's because investing is a "loser's game." And in a loser's game, skill won't always lead to success.
In fact, in a loser's game, you shouldn't focus on trying to win. You should focus on minimizing mistakes.
Investing is a type of loser's game, just like tennis. If you want to earn great returns, you need to keep your emotions in check...
Panic-selling is one of those classic mistakes. And a lot of folks made that unforced error when fear spiked earlier this month.
Selling in a tense moment means you've stopped the bleeding. It feels like you're protecting yourself. But here's the problem... Panic-selling is the easiest way to destroy your long-term returns.
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Now there can be a variety of reasons why the thought of selling comes into mind
1. The company faces a diminishing/adverse outlook i.e its fundamentals have turned for the worse
2. Its sectoral outlook is facing a bleak winter
3. Macro adversity causing a general or wider market correction
Brett did not say under what circumstance you should not be panic selling. Its broad brush that panic selling is necessarily bad and counter productive and destroys long term returns.
And under any of those circumstances above in which selling comes into consideration (other than trading, as this refers to investing for the longer haul), a holder can do one of three things
A, Sell into strength at the opportune time, for either a smaller profit or a smaller loss
B. Sell into weakness -aka panic selling into the correction after it has gone well into advance
C. Do nothing- stay the course
The B scenario is least desirable that most people think, A would definitely be preferred but most would miss doing A because of denial/procrastination that they end up doing B. OR they elect to do C and things got even worse than they finally did B (or double B).
There is no blanket what to do and how to sell rule if it was that easy, as it depends on the quality of stock, the valuation of the stock when you bought it, the company and industry outlook, company specific issues and the macro economic landscape.
But there are times when panic selling IMO is actually not counter productive but saves one from an even worse outcome. And they happen to even the best potential stocks of the time.
So now I would draw on a few examples to demonstrate :
ELECTRIC OPTIC SYSTEMS (EOS)
...like Droneshield (DRO), in 2019 this stock was tipped to be a niche ASX defence play stock that had potential to address the international military and space market, and the stock jumped from $2.45 in Dec 2018 to $10.53 in Jan 2020, a +430% gain. Some bad news happened in Jan 2020 and along with Covid crash and the stock fell sharply by to $4.20 by March 2020, a dramatic -60% loss from the peak. A -60% loss is dramatic in such a short time, and you'd be deeply troubled had you bought at $10.53, but less so at $2.45 as you are still up quite decently. In both cases, you are likely to hold (C- do nothing). By Nov 2020, as the Blue wave victory lifted all stocks, EOS recovered to a high of $6.68, now your chance to sell into strength (A scenario), from a -60% loss you have recovered to -36.5% loss (assuming you bought at the peak) and had you bought at $2.45, you'd have improved your returns from +71% to 272% which is pretty decent. Your choice to sell into strength should you elect, but some started thinking that the recovery could lead the stock to return to its all time high again so they could elect to do nothing (C scenario). Don't panic sell - stay the course and the stock will recover. Unfortunaly its bollocks, the market dipped and the company did not break ground and subsequently the stock fell out of favour and when held to this very day, those who bought at $2.45 is down by -30% after holding for almost 6 years, those who had bought at the peak of $10.53, would have lost -83.80%, when the former had the chance to exit then with 272% return selling into strength and the latter losing -36.5% instead of -83.80%.
Was panic selling the better outcome? Most certainly, in hindsight of course.
Most people know this company with unbridled potential of Zero Carbon Lithium- lithium was the blue eye sector in 2020-21, a German analyst even expressed valuing the company in mid teens and Gina Rinehart bought into the stock too (and still holding a big loss to date).
Everyone was so sure this would be the long term hold until production.
We consider again someone with the luck to have bought at $2.34 in mid Dec 2020, and another who bought into the FOMO at the peak of $15.90 in Sep 2021; the person who bought at $2.34 can't imagine his luck of 679% in just under 1 year, almost unprecedented, so with the thinking that he should wait until production time, he would be even be making more gains, or the longer he holds the better it gets, after all his cost is very low indeed. By the 3rd week of Feb 2022, the stock had fallen sharply to $8.63. That's a -45.7% correction in just under 5 months. Too late to sell, says the first buyer ($2.34) maybe should buy more. Likewise, the one who bought at the peak saw his holding cut by half, shell-shocked and hope to recover with time. Panic sell they refuse and did not, bought more they did because "nothing has changed"- in fact Gina has bought the company and the company has yet to go into production and lithium is the future (sounds familiar right, as those narratives in the LTR forum?) - so what happened? The stock fell to $5.37 in June 2022, both still did nothing (not selling at $5.37 when I decided not to sell at $8.63), so held they did. And the stock made a good recovery to $9.49 a month and a bit later in Aug 2022. A brilliant +76.7% gain from the depths of $5.37 two months earlier. Now its game on, they say. Here's the chance to sell into strength- did they take it? Person A who bought at $2.34 would have still made a handsome 405% (although much less than the 679% at the peak) and Person B who bought at the peak would have reduced his loss to -40%. They failed to sell into strength because they were anchored to the all time high price. Held to today's price of $3.86, Person A's gains dwindled to just +64.96% (compared to 400% had he sold into strength) and Person B is left with just 24.27% of his original capital -Person A held almost 4 years and Person B 3 years. They were not Better for Longer.
Was panic selling the better outcome? Most certainly, in hindsight of course.
..and I can go one with many more favorite stocks of the time
> NVX (Novonix)
> APX (Appen)
> CTD (Corporate Travel) (Motley Fool favorite)
> NAN (Nanosonic)
> CHN (Chalice)
> PPK
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IMO discouraging people from Panic Selling sounds right but is equally as dangerous as encouraging people to Panic Sell. Sometimes, given the circumstance, quick panic selling without procrastination saves one from a much larger loss. And for the record, I think panic selling is certainly the worst thing one can do, because if people aren't greedy and being so hopeful, they could have seized the opportunity to sell into strength (as the above examples illustrated), these opportunities do not come often but if not taken, some would regret not to have taken it when presented. The trouble is, every each time the stock starts rebounding, stale bulls want to believe the worse is over and they would typically wait for a full recovery to the price they bought, being hopeful of that is not a bad thing but if only life was like that. We know it seldom pans out that way, not when markets are at their precipice waiting at any moment to implode.
This is why I rather tell you this possible reality when the market remains high, rather than when the boat has sailed into the dark storm.
