Stock market crashes can affect people in unimaginable ways. It’s hard to watch the stock’s value drop as people often give in to the desire to sell their holdings in an attempt to stop the bleeding.
This impulsive action is quite understandable as many think that they can’t lose more if they sell. However, the action is quite risky and probably the worst you can decide during that time.
But before we move to the “why” part, let’s understand what a stock market bottom is first.
What Is Stock Market Bottom?
A stock market bottom refers to the lowest trading price for a security, commodity, or index within a particular time frame. In simple words, when someone says a stock is bottomed out, it means that the market has reached its lowest point and may be in the early stage of a rising trend.
The time frame for the stock market bottom can either be a year, a month, or even a day. But, in most cases, the period is usually a year or more. The stock market bottom usually comes up during bear markets, corrections, pullbacks, etc.
Since security is underpriced and trading is at its lowest, investors see it as an opportunity to buy stocks. Historically, it is the best time to buy stocks and the worst time to sell them.
Why Timing a Stock Market Bottom Is Not a Good Idea?
The stock market is unpredictable, and nobody can tell when it will reach the bottom. Furthermore, it may not hit bottom for all sectors at the same time. So, if you own stocks, you must believe in long-term selling.
If you think that you can sell the stocks now and buy them later at a lower price, it may not work the same way. Stock prices rise and fall for many reasons. So, chances are that you may even have to pay a higher price to buy them back later.
Keep in mind that a falling stock price isn’t something bad and is neither a reason to sell stocks that you’ve faith in.
The Solution
Instead of selling your stocks when the stock market hits bottom, ask yourself why that particular company is in your portfolio. You should have asked yourself this question while buying stocks but as you didn’t, you must ask it now. Depending on your answer, you can either choose to sell stocks or keep them.
For example, if you answer that you purchased the stocks as you heard from somewhere that it is going up, then that’s not an appropriate reason. You need to do some homework before purchasing stocks.
For instance, you either need to research the company on your own or take advice from professionals. However, while looking at the analyst reports, make sure that you don’t look at the reports from people based on short-term movements.
