Despite advice to the contrary, some investors are prone to panic selling. They sell off a large portion of their risky assets when the stock market tanks.Freaking out is not without benefits, according to the authors of a new paper, When Do Investors Freak Out? Machine Learning Predictions of Panic Selling. It can protect investors during a crisis.
“Recognize that all of us, no matter how much or little training we have in investments, are capable of freaking out under certain conditions,” said Lo. “Therefore, we should prepare for those situations by asking ourselves, ‘How much does the stock market have to drop before I decide it’s time to sell some/all of my investments?’”
And that’s just the reality of a more complicated financial world that we now live in. “It’s the same trend that we see in other fields, like medicine,” said Lo. And in order for the lobster trap to work there needs to be a portfolio designed to have elements that will shine in different kinds of markets.
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