12.2 What is fear & panic?

Hanumant Dhokle

FEAR & PANIC IN STOCK MARKET

This is the opposite of greed. Investors fear losing money due to a market crash or a bearish trend, driving them to sell their existing holdings at any given price. Let us understand this with an example. Mahesh has bought Reliance shares for Rs 1,300 per share. After one month, the stock market experiences a major crash and Mahesh’s stock falls to Rs 1,050 per share. Mahesh becomes panicky. His neighbor has sold off the Reliance shares. Mahesh thinks he should do the same. He sells off all his holdings. After two months, Reliance stock price starts recovering and reaches Rs 1,300. It rises further to Rs 1,400. Here it was the fear factor and tendency to do as others do, that caused a loss to Mahesh. A quote from a stock market guru is very relevant: ‘If you are a long-term investor and if your investment decision is based on strong fundamentals, pick the stock and stick to it. In the long run, fundamentally strong stocks have consistently shown an upward trend’. Many investors, who start investing in stocks, would start with a small amount such as Rs 5,000 or Rs 10,000. Once they see the profits at 10 per cent or 20 per cent in one day or one week or one month, they feel money making is so easy. In this phase, many new investors try to quit their job or existing profession or business and take investment or trading in stocks as a full time job. These new investors slowly increase their investment levels and also experience losses. But they don’t realise this as they have a lot of time and scope in the stock market. Further, they increase their investment manifold till they suffer terrible losses. At this time, they realise what has happened but blame the stock market. They don’t stop there. They start hating the stock market. This ‘get rich quick’ mentality makes it hard for the investor to maintain profits as there are no definite investment plans.

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