Jim Cramer always says "Nobody ever made a dime panicking." I'll give you an example of Jim's advice in action.
On July 24th my Scottrade account was at an all time high. Then came the market sell-off - my stocks got hit pretty hard (SLB, TM, and PCU). On Monday morning, I was $900 poorer than I was on July 24th. I was cursing myself for not selling at the top - for not avoiding the $900 "loss." I experienced fear and panic as I watched my account get a smackdown. By Monday, I'd had enough and I was seriously considering selling everything to avoid more losses. Luckily I managed to keep my cool and stay in the game - yesterday and today my stocks bounced hard and now I'm only $300 from my all-time high. That's a $600 bounce in 2 days. W00t W00t!
The lesson: If you begin to panic as you see your account rapidly lose money, it's probably not the best time to sell. The time to sell was at the top, but too bad Champ, you missed it. Wait for a bounce instead of freaking out like everyone else.
This all has to do with greed and fear. Here's what goes wrong: As you watch a stock skyrocket, you get greedy and wish you were making money like everyone else - so you unwittingly buy at the top. Then everyone starts bailing, your stock plunges - you panic and sell at the bottom. Check your greed and fear at the door - Sell on the way up and buy on the way down.
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