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When fear flares into panic

Feb 18, 2009 | | Comments Comments Off

When you’re getting a pilot’s license, one of the first things you learn is how to avoid a stall. A stall is when the plane’s wings suddenly lose lift, which can lead to an uncontrollable plunge to the ground.

You’re taught that if the plane is flying at low speed and starts to shake, you push the nose down. Your instructor takes you up into the sky and puts the plane in a near-stall, over and over again, so you can practice this recovery maneuver until it’s reflexive. Shake, push down. Shake, push down.

Yet now comes information from last week’s terrible commuter plane crash that the pilot seems to have done exactly the opposite–that he pulled the nose up instead of down.

It’s still too early to draw conclusions, of course, but it wouldn’t be the first time a human being panicked and did exactly the wrong thing, with disastrous consequences.

To bring this home: being fearful about your investments is a perfectly human and rational response to the uncertainty in the market and the economy. But some people are letting fear flare into panic. They’ve become hysterical and irrational. They’re convinced the economy is about to collapse and their investments will become worthless. They’re making sudden, radical changes in their portfolios rather than taking a moment to breathe, get unconflicted advice and see the big picture.

When you’re a pilot, you may not have time to reflect. That’s why flight training is so important. As long-term investors, though, we don’t have to make split-second decisions. We can take the time to get it right.

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