How Sticking With What You Know Can Hurt Your Investments
Sep 24, 2025
**Warning:** When people panic and sell off investments, it’s more than just a small hit to your portfolio – it can mess up your ability to think clearly. Fear spreads fast – one person selling can cause others to do the same. Prices fluctuate wildly, and it becomes hard to know what’s real. If you’re just following the crowd at a moment like that to feel better, you’re putting yourself at risk. Realize that those shouting the loudest during market crashes aren’t experts; they’re just repeating what everyone else is saying. Recognize that the biggest mistake investors make is sticking with what they’re used to, hurting their returns.
Why Market Panic Happens: How Fear Drives Prices Down
Panic spreads like wildfire. Small things can cause big shifts in the market, like what happened in 1929, 2008, and March 2020. Certain ways of thinking can make people act together like a group. For instance, people feel losses more strongly than gains, they tend to follow what others do, or they make decisions based on what easily comes to mind. It can affect things like interest rates, how much investors are willing to pay for assets, and how exchange-traded funds are doing. Prices can change quickly. A single margin call can cause a huge drop in prices.
Think about what happened in 2008 when things froze up and prices moved together. Or when oil prices went negative in April 2020 – it wasn’t the end of the world, but storage issues and contract expirations caused a brief drop. Or when the UK’s pension funds had problems in 2022, normally steady assets caused further issues. History shows that panic isn’t just about the market feeling emotional. It’s a complex situation, where small problems can trigger big changes. The best thing to do is to have a solid investment strategy that you stick to, no matter what your gut tells you.
The Problem With Sticking To Your Habits
**Being Uninformed Can Hurt You.** Some investors don’t want to fix things; they’d rather complain. So they stick with familiar investments, which slowly become less profitable. Or they hang on to investments that are losing money because they don’t want to admit they were wrong. Every bad decision adds up and can lead to big problems later on. It’s a mistake to think that doing nothing is always the safe choice. Sometimes, in tough times, staying put can backfire on you.
Not paying attention to important information can have serious consequences. Investors who don’t bother to learn about balance sheets or credit are taking a big risk. You’re not a smart long-term investor if you’re ignoring important facts; you’re just not ready. It’s important to be honest with yourself. Being realistic may not always make you happy, but it’s better than losing all your money by hoping for the best. If you can’t that explain your investment in a single sentence and include what could go wrong, you’re just guessing.
Making Money From Fear: When Others Are Scared, You Can Buy Low
Good investors don’t run from fear; they take advantage of it. Warren Buffett’s investments in Goldman Sachs in 2008 weren’t about just hoping for the best. He was able to set his own terms in a difficult situation. As Charlie Munger said, Take a simple idea and take it seriously. This can help you avoid getting caught up in market panic. Jesse Livermore made money by selling stocks short during the 1929 crash, but he also learned the hard way what happens when you don’t stick to your guidelines. The key is to be prepared: set your rules now, have cash on hand, and know when to buy or sell before your emotions take over.
Think of the market as made up of different things like interest rates, how easily companies can borrow money, and what’s happening with the dollar. A market that’s going up, but where borrowing is still costly and the dollar is strong, might not last. A market that’s going down, but where borrowing costs are falling, and prices are stabilizing, could be a sign that things are getting better. The point is not to blindly go against the crowd, but to step in where others can’t because of their own limitations or fears.
How To Take Advantage of Market Panic
When fear is high—meaning the VIX is above 35—you can make money without guessing when the market will bottom. For example, say a solid company is trading at $240 during a sell-off. One-month puts with a strike price of $200 might cost $8–$11. If you sell ten of these contracts, you’ll collect $8,000–$11,000 and set aside $200,000 in case you need to buy the shares. If the stock stays above $200, you keep the premium. If you do end up buying the shares, your cost would be around $189–$192. That’s how you turn panic into profit.
Now invest some of that premium into longer-term calls—options that expire in 18–36 months and move roughly in line with the stock. If the market turns around—rates drop, spreads narrow—you’ll have potential upside without needing to predict the exact timing. Keep your positions small: 1–2% per investment, 6–8% per theme, and have strict daily loss limits. Treat risk like a budget, not a feeling.
Lessons From Unusual Situations
Unusual situations teach you faster than normal trends. Negative oil prices? It’s something that seemed impossible that made people worry. The meme stock craze? It was people trying to game the market until prices crashed. How did pension funds cause more market volatility? It was supposed to reduce it. In general, problems can spread when funding, positioning, collateral, and general sentiment all line up in the wrong way. Separate things can affect each other and grow. Understanding these relationship is key, look for places where two seemingly harmless trends combine to cause a big problem.
Mythology holds a mirror. Achilles’ anger wins battles but destroys him; Icarus flies high until the sun melts his wings. In markets, too much optimism can be risky. Successful investors don’t dismiss the crowd, but they recognize when things are getting out of hand. When the hype gets louder than the facts, risk is increasing. When everyone is gloomy, opportunity is coming.
Stick to Your Investment Plan
Taking big risks without a plan is gambling. Being too careful can cause you to miss out on opportunities. The best approach is to make smart decisions based on a clear plan. Write down your plan: What’s your investment idea? What needs to happen for you to buy? When will you sell based on price or time? What could go wrong with this investment? Keep track of your emotions when you buy and sell so you know if you are being biased. Turn off notifications. Make it harder to make snap decisions by requiring an extra step whenever you make orders.
Stop-losses are just being respect and showing when you are wrong, they’re not a sign of weakness. Taking profits shows that you’re being smart, not scared. In a tough market, exiting at a profit is an accomplishment. Make sure you don’t risk too much on any one trade. Buy in stages. If the market confirms your thesis, add another 25%. Add the rest when interest rates and market conditions agree. Focus on a well planned execution, not trying to gamble. And remember, sometimes the best move is to hold cash and wait for a better entry point.
Spotting Market Turns
Market turns don’t happen with a loud announcement; multiple things have to align. Look for improvements in multiple sectors, high-yield credit spreads improving, a weaker dollar helping global funding, and a certain pattern in volatility. Companies with real cash flow should start outperforming, even on down days. Levels that were broken should be taken back and now hold as support. When multiple factors align, that’s when you can increase your risk and start focusing on compounders and quality cyclicals.
Until then, understand that you might be making decisions because you’re comfortable, not because it’s the smartest thing to do. The market rewards those who react to new information, not those who need to be told what to do.
Think For Yourself
The market is driven by crowds, but the best returns come from having your own system. If you break away from the herd, you gain freedom. You don’t lose money from bad timing, you think clearly, and you make decisions calmly. This is not a pose; it takes discipline and work. View fear as a price and panic as an opportunity, and silence as a setup. When things are chaotic, map all your options, and don’t follow others blindly.
Good investors had a process that guided their decisions and behaviour. Develop your own and be willing to stand by it. By sticking to a system, you can turn risk into opportunity and into long term income. You’ll also realise the cost of sticking to the status quo because you’ve seen how it’s held you back. Learn how you beat the market by not making poor decisions.
The final, quiet test: are you humble enough to stop when you don’t have an edge? Can you be patient and hold cash until there’s a clear opportunity? Can you admit when your investment idea is no longer valid? If so, you’re ahead of the game. If not, the market will teach you through experience. Make decisions by trusting your process and your rules rather than following a hot stock pick. The market will always try to teach you that lesson, but trust your thesis.
