Reblog: How to keep cool when the market is not
Understand that volatility, downward or upward, is just data.
Avoid looking at your portfolio on a daily basis, specially when there is tremendous volatility. There’s lots of research on how frequently checking your portfolio, especially during market downturns, can warp one’s behaviour and get you into trouble.
Remember that our minds play tricks on us.
If the market drops, that’s past. That’s gone. There’s nothing we can do about it. It’s really as we think forward to what will happen that our minds take that data and apply a story.
If you don’t know what that story is, it’s probably the bias of recency bias–thinking that what just happened is about to happen. But when we think about that rationally, we of course know that’s not the case.
One of the things that we can do is to round out that story: This just happened; this is what I believe is about to happen; what’s the rightful thing to do? For most professional, thoughtful investors, they know it means you look for bargains. Same exact data. Very different outcome.