Dow closed below the 10,000 mark.
Today, the KLSE is also sold down.
How to remain rationale in a falling market?
This is dependent on the investors' investment objectives, time horizon and risk tolerance.
In investing, the consequences should always dominate over the probabilities of an event occurring in their decision making.
How low and how long the market will stay low is not predictable. The market may even swings upwards soon catching everyone by surprise. Who knows? Who cares?
There will be those who will need to get out of the market for various reasons. The two strategies available to them to prevent large irreversible losses are to cut loss (when the losses are small) and/or to re-balance their portfolio.
However, for those who have been prudent value investors, it is an opportune time to review the stocks in their portfolio in the present market. They may find the falling market presenting better opportunities and rewards instead. The key is in understanding the difference between price and value.
To minimise the negative impacts of market timing on their returns, those who are buying into stocks may wish to take note of the following strategies: lump sum investing, dollar cost averaging and phasing in their investments. Another good strategy to keep in mind, is selling their fairly valued stocks to reinvest into deeply undervalued stocks.
Above all else, it is important to remain rationale. This may be easy at present when the market has corrected a few percentage points. Trust me, it will be harder (but definitely more rewarding) when the market is down by 20% to 50%, and especially so when the market is down over a prolonged period. In other words, when there is "blood flowing on the street." It is in these times, when the prudent investors should avoid the temptation of following the herd, but to stay true to their investment philosophy and strategy, to guide them through the ups and the downs of the market, over their long investing time horizons.
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