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Selling stocks is the wrong 401(k) move when markets fall


The time to sell is not when stocks are down. Yet the principle is so much easier to embrace during rising markets than in the midst of chaotic selling, which causes our flight instinct to kick in. 

Resist the urge. Money is made at turning points and the crowd is rarely right at critical moments. Why? Because 50% to 90% of daily volume is driven by the trading algorithms, not by human investors with long-term time horizons.   

Consider lemmings, small rodents who migrate in large groups when their population density becomes excessive. The lemming’s instinct is to run with the crowd, even at its own peril — even to its death.

Lemmings are often compared to investors chasing what just worked. Think analysts upgrading Apple at $320 (lemming) compared with selling Apple in a regular and disciplined fashion as it continued to hit new highs (not lemming).

Stock market high

Going against the crowd is difficult. But it is critical to creating wealth. Don’t succumb to the hysteria.

A broker watches his screens with the German stock index DAX in background at the stock market in Frankfurt, Germany,  Feb. 28, 2020.

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The lemmings running for the exits this past week may seem to know something the average investor doesn’t know. But I would argue that the indiscriminate stampede out the door, led by computer trading programs, parallels nature more closely than excellent investing principles. And though sometimes painful, sound investing principles are always in vogue.  



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