Mad Money

When Investors Panic, Get Greedy


If you see a stock go down, or the market go down, it’s understandable that you’d assume people were selling because something was wrong. That’s not always the case, though. In fact, when the market gets volatile – like it was today – good stocks go down solely because bad investors panic.

But in these situations, you have to see weakness as a buying opportunity and not a reason to jump ship. As a matter of fact, Cramer says, get greedy. Assume the sellers are desperate, and take advantage of their inability to manager their fears. In the end, you get an opportunity to buy some perfectly good stocks that the chumps are throwing out – some of them might come with high dividends, others might make consumer staples. Panicked sellers may dump these stocks, but they’re not going away.

If you’ve fallen victim to this hysteria, don’t beat yourself up – Cramer has done it himself. Ten years ago, he lost about $10 million dollars dumping stocks in a panic. He got rid of $100 million worth of equities at a point to a point and a half below where he’d bought in, expecting the market to open way down. It did – but then rebounded later that day, passing the break-even mark and making Goldman Sachs , who’d bought the stocks from Cramer, a fortune.

Yes, the lesson is don’t panic. But also keep in mind that there’s always a better time to sell. Remember: In investing, patience is a virtue. Often times, you can find a better selling price if you just wait.

Bottom Line: After a big sell-off, people get scared. They want to sell stocks that are perfectly fine to reduce their overall exposure, and that gives us days like today where the market opens down big and then bounces back. Don’t be a sucker – stocks don’t always go down because they deserve to, and selling them for no better reason than a decline is a sucker’s game.

Jim’s charitable trust owns Goldman Sachs.

Questions? Comments?