From the retail crowd seeing their funds disappear to the experienced fund manager looking down at red across every screen, every investor's mind is focused on this question. Fear is invading portfolios, distorting judgments, and dragging even the brightest brains off track.
I have seen this before, in 2000, 2008, and 2020. Though on the surface each collision seemed distinct, beneath each ran the same emotional script: panic first, opportunity second. While history discreetly reveals a pattern for those with discernment, the headlines exude a sense of impending doom.
The Nature Of Fear in Markets—It Distorts Reality.
Fear makes smart investors emotional ones. It substitutes survival instinct with solid planning. And regardless of experience, anxiety whispers that this time may truly be different when the market falls rapidly and hard.
We have seen this script before. The dotcom bubble broke in 2000, therefore eradicating ideas of infinite expansion. The financial crisis tore confidence in institutions in 2008. In 2020, a virus crippled global markets during the day. Every moment set off the same response: broad panic, indiscriminate selling, and a dash to safety - usually too late.
"Short run, the market is a voting machine," Warren Buffett said. Long term, the market functions as a weighing machine. Most investors overlook the fact that anxiety, when it gets louder, becomes a major sign of forced selling. That is not a justification for running. This motivates one to start working.
Common Investor Fears During Crashes
Rational thinking gives place to emotional survival when markets collapse quickly. Fear takes over control; it does not simply occupy the room. I’ve observed the same repeating worries afflicting investors during every significant downturn:
- “I am going to lose everything.”Most extreme fear is this one. Rarely, though, does it capture reality. A downturn is volatility, not finality; it is not a catastrophic loss unless you are overleveraged or focused on structurally flawed assets.
- "What would this be different from?"Every crash in the moment seems unheard of. Beneath the headlines, though, the causes—excess, leverage, and false expectations—are painfully known. Many times, believing "this time is different" results in the rejection of tried-for solutions.
- “Should I sell now and buy back lower?”This is an illusion with peril. Accurately timed market movements rely more on chance than skill. Most who try wind up buying back at more expensive rates, selling low, and missing the recovery.
- "Am I missing better prospects somewhere else?"One develops dread of missing out and then worry of being left behind. Often hunting safer assets already overvalued, investors migrate out of quality into comfort.
They are behavioral traps, loss aversion, recency bias, and herd mentality that drive investors into emotional decisions, irreversibly damaging capital. The prizes include They are the ones that interpret fear as a signal, not as a justification.
The Practical Response
- When markets fall, most investors react, but really you should reassess. Have a Process. Every position in my portfolio begins with a catalyst. I stop and go back over the thesis when volatility strikes instead of panicking. Has the plot changed? Has the brink vanished? Should we not hold or double down? If so, I cut it quickly and redistribute it. I do not sell on dread. I sell when the margin disappears.
- Opportunity Screen - Not Comfort. Volatility causes mispricing. That's when I search for spinoffs, insider-heavy turnarounds, restructurings, and dislocations—run the most aggressive screenings. History supports this: in the twelve months following significant market lows, the S&P 500 has averaged over thirty-five percent. The secret is to know ahead.
- Live by Smart Money - Insiders buying amid a crisis are not guessing; they are expressing certainty. I monitor management changes, insider buying trends, and dropped spinoffs often missed by institutional investors. These are choices supported by data, not emotional ones.
- Straighten Positioning - In a declining market, i.e., focus less broadly. Fewer names. Increasing conviction.
The Power Of Process Over Panic
In falling markets, process serves as the shield while emotion is the enemy. There should be no guessing. Volatility sharpens my research-driven, catalyst-led approach; it does not disturb it. Others rush for comfort or cash, but I follow discipline: spotting dislocations, verifying catalysts, and precisely allocating. This is about becoming ready before it shows, not about forecasting the bottom. Every crisis we have negotiated has made me more careful, more focused, and surer of our capacity to identify value when the noise level is highest. Anxiety vanishes. Process lives.
What You Should Do Now
Most investors seek an exit when fear rules the market. The brighter one’s search for an edge. If you only learn one lesson from this article, let it be this: sell since your premise is broken rather than selling since you are afraid. There is quite a great difference. At my company, The Edge, we pay more attention to what is misinterpreted than to what is falling. This is the time to monitor insider buying since, although the public withdraws, insiders are often acting with conviction rather than emotion. This is also the moment to hone your attention on spinoffs, restructurings, and businesses experiencing true internal transformation rather than merely following what seems low-cost. Use the crash to construct a future-oriented portfolio rather than to fix a faulty one. The market will bounce back, as it always does, but only those who used the drawdown sensibly will stand ahead. Get ready to observe the process. Back off. See the panic as an advantage. Create a repeatable, not reactive, approach that will help you be more suited for what lies ahead than merely surviving what is now.
Final Words: This Is The Edge
Panic is noise. You are supposed to pick up the signal. Do not herd like others. When others pause, look for mispriced opportunities, separate actual triggers, and act with confidence. While bad judgments do, crashes do not kill investors. Process, patience, and preparation set long-term winners apart from the rest, not luck or timing.
If this speaks to you and you're ready to stop reacting and start investing with intent, you can follow me here and also explore my book, Price Catalysts: Proven Strategies for Spotting Profitable Stock Investments, more deeply. Available on Amazon.
On the date of publication, Jim Osman did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
