Terrorism and the Stock Markets
What is the best thing for traders/investors to do in the event of a terrorist atrocity?
It's hard for newer investors to know what to do when they see all their stocks tumbling and when the human reflex is for flight: that is - sell everything. In fact, a quick look around ADVFN's bulletin boards showed that many did just that - sell up at any price.
Older hands, like me, who have been in this situation many times, do nothing. Of course, the City is supposed to be about dog eat dog. Many might feel that a panic tumble of stocks gives them an ideal chance to top up on favourite stocks at discount prices or indeed, perhaps try to make quick money by shorting.
My personal view (and it may be too moral for some) is that I don't want to make money from other people's misery. I did nothing - tempting though it might have been to pick up great stock at sudden markdowns.
Taking the moral standpoint aside, those trying to sell at a time of panic face a lot of problems. Market makers cut links to brokers, so online dealing becomes next to impossible. Spreads get widened and if you want to get out, you'll find the price offered could be even lower than seen on screen.
What you are, in effect, doing by panicking is probably making yourself a lot poorer. And if you want to buy back the stock that you sold in a panic, you'll probably have to buy back in at higher prices, and there's commission and stamp duty to pay.
My view is always this: think of Corporal Jones in Dad's Army
and don't do what he does, which is jump up and down and panic. Similarly, don't act like Private Fraser thinking we are all doomed. The human spirit is strong and we come out of adversity quickly.
As for me, my do nothing stance proved correct and, a day on from the bombs, most of my stocks are back to where they were before the panic, and some are even higher.
Let us hope there is never again another terrorist event. But if there is one, my advice is to switch off trading screens. Modern stock markets now appear to quickly discount terrorist activity.
My thoughts are with those families now having to deal with the horrific consequences of the bombs. Let us all, in our own way, take a little time out of our busy days and pray for them.
After all, it could have been any of us.