{"id":7483,"date":"2014-03-10T12:23:19","date_gmt":"2014-03-10T19:23:19","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=7483"},"modified":"2016-12-21T07:28:09","modified_gmt":"2016-12-21T15:28:09","slug":"prosper-stock-market-panic","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/prosper-stock-market-panic\/","title":{"rendered":"How To Prosper In A Stock Market Panic"},"content":{"rendered":"

The stock market panic of 2007 and 2008 was epic, truly a stunning fall. And we’ve almost completely forgotten about it.<\/p>\n

And that’s pretty much normal. Investors are an optimistic lot. We tend to believe in progress and that putting money at risk is worthwhile, even a precondition of progress.<\/p>\n

The really big problem, however, wasn’t the decline of the stock market. The problem was the many\u00a0investors who panicked and sold<\/a>\u00a0as it fell.<\/p>\n

\"stock<\/a><\/p>\n

Think through that dynamic for a second: As some investors sold off their stocks, what happened to those shares? Did they get absorbed by the companies that issued them? Yes. Did other investors buy them? Yes.<\/p>\n

Which raises an interesting question: If the stock market was in such trouble, why did some investors buy as others sold?<\/p>\n

In the case of the companies that bought their own shares, they exercised a simple strategy known as a “buyback” in order to help their shareholders.<\/p>\n

The thinking is, the fewer shares there are on the market, the less likely the price will erode over time.\u00a0Lower supply met by steady demand thus results in firmer, if not higher, pricing.<\/p>\n

When a company has cash to spend, it can either issue or raise the dividend, do a buyback on the open market or, if it’s a growth-oriented company, invest in new business.<\/p>\n

Any of these three moves helps existing shareholders, which often includes the management itself. A panic just makes it easier to buy.<\/p>\n

As for independent investors who bought, they saw the same value opportunity in play. Either they had cash to spend or had already targeted specific stocks at specific prices as “buy” signals. They\u00a0stuck to their investment plan<\/a>, that’s all.<\/p>\n

Can you, as a retirement investor, begin to think the same way? Sure, but it takes discipline.<\/p>\n