Investing Lessons Learned from 2008 Stock Market Collapse

The stock market collapse of 2008 was a wake up call for many investors. The unprecedented sudden and steep decline in prices shocked many investors as they watched the value of their portfolios drop significantly in just a few weeks.

But with this pain comes the opportunity to become a more astute investor in the future. Here's a summary of important lessons to be learned from the recent market meltdown.

Stocks do not go up for ever. Stock prices fluctuate minute-by-minute as well as decade to decade. Losing money with stocks is a fact of life.
Learn to read price charts so you can spot bubbles. More...
Price bubbles always burst, no matter what kind the asset (i.e., stocks, bonds, real estate, oil, copper, gold, silver, coins, stamps, artwork, grains). More...
Do not buy stocks that are going down in price. A stock that has declined 50 percent may seem like a bargain, but historical price charts remind us that such a stock could fall much more. Be very careful taking advice from pundits recommending stocks that are on the price downside More...
If you own a stock and its price chart confirms that it's at or near bubble prices, sell it. More...
Wait until a stock stabilizes and then buy it on the price upside. You might miss buying at the lowest price, but you'll increase you chance of making money if you buy when prices are on an uptrend. More...
Be skeptical of investment advice from all sources. Separate fact from opinion, conjecture and speculation. No on really knows the future directions of stocks.
Don't base any investment decision on hearsay.
Eliminate emotion, particularly anger and fear, from your investment decision making. You can't control the movement of stock prices, but you can control your reaction to extreme volatility that causes the value of your portfolio to fluctuate.
Be diversified. Don't load up on one of two stocks or similar stocks from one sector. If you're wrong, you can get killed, particularly if you own volatile stocks like energy and commodities.
Keep an ample supply of cash on hand. Cash doesn't offer great returns, but it won't disappear overnight like some stocks. And you'll have cash available to buy stocks at bargain prices when they head to the upside.
Don't chase stocks; especially don't buy a stock just to attempt to recoup a loss associated with another stock.

Related Articles:

Expect Stocks to Go Lower
Stock Market Meltdown Trims Buy-and-Hold Returns
The S&P 500 at 600 or Lower Is Possible

Posted October 21, 2008.

Investing Lessons Learned from 2008 Stock Market Collapse

Investing Lessons Learned from 2008 Stock Market Collapse