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What market capitulation means and what investors should do

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What market capitulation means and what investors should do

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Among the turmoil in the market analysts often begin to throw: the investor or the surrender of the market.

This usually means the point at which investors throw in the towel and sell, mostly giving up the asset and hoping to recoup the lost profits. Typically, capitulation occurs during times of great uncertainty, market volatility and a lack of investor confidence.

“They kind of thought they’ve swallowed all the losses they can and don’t see the future, so it’s finally time to pull the plug and get out,” said Jason Stino, president of CoreCap Advisors & CoreCap Investments in Southfield, Michigan.

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Usually such sales are based on fear, says Shveta Lavender, a certified financial planner and leading consultant of the New York firm Francis Financial, which serves women, couples and divorcees.

“They’re worried they won’t be able to get back the money they lost while holding the shares,” she said. “All these sales among investors are making the stock price fall even more.”

What comes after surrender

This is what analysts and big investors are watching, because it could point to the bottom of a falling market cycle, potentially signaling better days ahead. But it can be difficult to determine when this happens, and easier to spot in retrospect.

“This short-term fall is usually followed by a stock price rally,” Lavender said, adding that this upward movement captures the losses of those who sold on the fall.

According to financial advisors, for most retail investors who save and invest in the markets in the long run, this can be a scary moment, but one that requires no action.

“I really believe in staying invested,” Steen said, adding that it has been shown many times that when you pull assets in the worst days of the market, you miss some of the best recovery days that could hurt your portfolio in the long run perspective. term.

In addition, a downturn in the market could also be an opportunity for investors, Lavender said.

“If investors are responding to fear by cutting stocks, it may be a good time to buy those stocks in their portfolios so they can take advantage of a lower price,” she said. She noted that investors who sell at a discount can collect these losses for tax purposes to offset the profits they have in the future.

Stick to your plan

Of course, this may be easier said than done when markets are so volatile.

In this situation, Stino advises his clients to return to their plan, which was usually made when the markets worked better and there was less emotion.

“The reason there is a plan is for such times,” he said.

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