Chapter 9 · Mission 6 · 2007–2012
Crises and panic selling
A financial crisis is when trust in banks and credit breaks down: lending stops, asset prices fall together and fear spreads.
Goes with Mission 6: A financial crisis.
The idea
In short
- 1A financial crisis is when trust in banks and credit breaks down: lending stops, asset prices fall together and fear spreads.
- 2Panic selling: selling after a big fall, to stop the pain. It turns a temporary loss into a permanent one, and usually happens close to the bottom.
- 3Nobody rings a bell at the bottom: the best months often come right after the worst ones, when the news is still bad.
- 4A plan made before the crisis (your mix, how much fall you can live with, your rebalancing rule) is what stops you from deciding in a panic.
- 5Safe havens: in a panic, investors rush to government bonds and cash.
In the data
What history shows
Holding US stocks, or selling after a 40% fall, 1928–1949
Real data, January 1928 to December 1949: years before any mission, so nothing is given away. Monthly returns from Robert Shiller and Aswath Damodaran.
Real figures
The numbers
Finish missions 3 and 6 to see these real figures.
Remember
Takeaways
Finish missions 3 and 6 to see the takeaways.
Practice, not scored
Quiz
1. Your stocks are at −45% from their peak and the news is terrible. What does history say about selling now?
Finish Mission 3 to see this question.
3. What protects you from panic selling?