How investors can react to the fall in prices

For excitement there is currently a good reason - but not for panic. In short, the reactions of the local investment professionals can be summarized according to the current price drop. The Dow Jones Index had hit hard at the beginning of the week, and it had risen by a whopping 1175 points on the first day of February. 

That was after all 4.6% price loss on only a single trading day and thus "more than ever before," groaned several stockbrokers. And after the stock markets in America closed, the downtrend also continued in Asian markets and on Tuesday morning in Europe. 

At least the German stock index Dax but the very big crash was still spared, he had lost by noon about 1.6 percent to around 12,500 points. Some had previously feared that it could also be a "free fall" among the 12. 000er mark come. Nevertheless, all investors are now asking themselves: what now? Was that just the prelude?

The question of whether it really was just a flash crash, i.e. a short-term crash - or whether the stock markets have now ushered in the feared end of the years of bull markets and henceforth plunge down, cannot be answered so clearly after the price crash, of course, 

Why the escape movement from the market in just one day so strong turned out, which is mainly due to the fully automatic trading systems and the computerized settlement. After all, many investment professionals use share buy-up stop prices to set a security to sell when it drops below the entry price by a certain percentage. 

If it comes to a crash, then many of these limits are exceeded and the trading systems automatically trigger sales orders. So a large amount of shares is thrown on the market at the same time, which depresses the prices and in turn sets new sales orders in motion. 

On Monday and Tuesday alone, the indices have largely lost the gains they have made since the beginning of the year (up five percent since the beginning of January). Partially they are now recording again at the booth they held in December.

Is it now going downhill or was that just the long overdue course correction that many market observers had warned against? After all, it depends on how equity investors should now position themselves, because there are three basic options: should they sell their shares, hold their securities, or even repurchase titles, because the short crash offers better entry prices than last? That's the big question.

Let's take a look at what happened last: In January, many large investors and investment professionals held as little cash as they rarely did. The cash ratio was 4.4 percent at a five-year low. In addition, 55 percent of professionals said stocks should be overweighed. 65 percent did not consider bonds as the investment of choice. 

And hedge funds were also heavily invested in equities, but did not rely heavily on short-term hedging. All this means that the mood in the markets was as optimistic as it was

rare. Conversely, this means that the majority of market observers: 

The current crash had no fundamental reasons, but he was rather the result of this too optimistic mood. Once again, the fear of a rate hike in America and Europe and the concerns Inflation could soon report more violently. 

Out of this fear, many professionals seem to have scaled back their share quotas, triggering the prices to plummet.

Much more than a "cleansing storm" but the crash is probably not my investment professionals such as Robert Halver of the Baader Bank. Because fundamentally nothing has changed. The economy is growing stronger than it has not been for a long time, which would further boost corporate profits. 

However, due to the interest rate increase announcements made by the US Federal Reserve, bond yields had risen in the short term. There were overflow effects on the stock market. 

Hedge funds also suddenly withdrew capital from stocks. In principle, however, the environment for equities remains friendly. Many other analysts see this as well: An end to the good economic situation is not foreseeable at the moment, which will allow corporate profits to rise further and also keep the stock markets going. Indeed, that, too, is clear, the huge price upswing seems over for now. 

At least in the near future, the prices can fluctuate violently up and down. One thing is certain to be back: volatility. The fear index on the stock exchanges has recently increased by 100 percent, statisticians have already warned.

Selling?

A convincing reason to sell stock holdings in this situation, see the vast majority of analysts currently not. In addition, in or shortly after such a flash crash, it would be pretty unreasonable. 

For the already incurred losses of about five percent (or just about two percent in the Dax), investors cannot avoid anyway. In addition, investors have a difficult time in crash phases to strike their papers in time and therefore usually have to take bigger crashes than professional investors.

In addition, the question then arises: what to do with liquidated capital? So what is a sensible alternative investment in these times? Cash no longer brings any returns on overnight money accounts, commodity prices also fell and bonds are not really good as a return hauler. 

On the contrary, because investors were downright plunging into the bond market, bond prices shot up sharply, but yields dropped in a mirror image. German government bonds now yield around 0.67 percent, which is not necessarily a serious replacement for equity investments. And US government bonds do not currently bring in more than 2.77 percent. And if really gold will bring the hoped-for rescue from the turbulence? In any case, it barely moved in the face of the price slide.

The second question sellers have to answer later is: when should they get back in? And only at this point it will be really hard. Because the optimal timing for the new market entry investors miss as good as ever, have behavioral economists found out. 

You know from many market simulations that investors are bad at determining the moment when the market continues to move upwards. And that applies to both professional investors and private individuals. 

Ultimately, it's just a coincidence that they will be back in time for the next upswing, or if they will miss much of the course's recovery. You just have to calculate it this way: If the market does not sag many more percentages within the next few days and weeks, but the five percent he has made up for - sellers have won nothing at all. But only additional money sunk by trading costs.

Anyone who does not want to endure this insecurity, for example, because he urgently needs capital in the foreseeable future - and has already made large profits in the past bull market - should either really think about whether he wants to realize his profits through selling. At the top of the sales list should be those corporate papers that did not come up with good fundamentals. 

Companies that did not show off their profits, but lagged the competition. For they will be the ones to be overly harshly punished if there were to be a further fall in prices across the board. Or he should at least speed follow his stop courses and set so that he hits the papers in any case above the starting price,

This is at least not unlikely, says the statistics: If you look at the 20 biggest crashes in the past 25 years, then it came in eight cases within the next ten days to further price falls - or at least after these ten days, the price was lower as before the first crash day. Conversely, this means that in twelve of the 20 cases, it was the one-time crash and after just ten days, the indices were back in the Plus. On a yearly basis, reverse only stopped twice, in 2001 and 2008.

To buy?

So the basic optimists point to an old principle: you have to buy, if the guns thunder! Such a fall in price usually means only that stocks are now unexpectedly cheap to have. Every crash is therefore a signal to increase the depot. Of course you have to want to take that risk first.

 And then, above all, keep your nerve - and buy the right stocks. The best possible European or domestic blue chips. After all, corporate papers had not been as heavily boosted as American stocks. The fears of interest rates of investors and the hope of further economic shocks have thus made in this country not so strongly felt. As a result, European equities are currently still relatively cheap.

In fact, some analysts had recently warned that stock market prices had risen more than corporate profits. This has greatly boosted the valuations of many stocks. The price-earnings ratio in the Dow Jones, for example, was 18 at the end of the year, about a quarter above its long-term historical average. So you could say: Stocks were too expensive in the end, so it would be natural for prices to get a little worse again. And the whole thing - if one believes the good economic forecasts worldwide - only a short process.

Or just hold it?

As I said, it was usually after the last 20 big crashes. At least the markets in the following months have again developed a majority of positive. For example, the Dow Jones averaged a six percent plus in the following six months. 

After nine to 12 months, it was about 14 percent higher than before. So the uptrend could go very well. But analysts also warn that the recent stock market upswing was already one of the longest in history anyway. And his intensity was enormous. 

It was the strongest uptrend in the markets since 1955, as indicated by the upward index RSI. Since 1920, he rose only ten times over the 85 percent mark, this time he put down even 88 percent. Therefore, many market observers currently advise: wait! It could come to a strong ups and downs on the stock exchanges in the next time. 

A second and strong correction is not excluded. A longer sideways movement until autumn, some find not unusual in such a situation. At least, investors would have to adjust to a turbulent spring. That is why experts like Halver say: The markets should first let off steam. 

Only then should one go in as an investor again with new capital. At least when it comes to creating larger sums. That is why experts like Halver say: The markets should first let off steam. Only then should one go in as an investor again with new capital. At least when it comes to creating larger sums. That is why experts like Halver say: The markets should first let off steam. Only then should one go in as an investor again with new capital. At least when it comes to creating larger sums.

Anyway, if you save money in small installments and put money into the market on a regular basis, you can even be happy now: For the Savings Planner, the market currently seems like it's made. 

The low prices ensure that savers get more paper than at present. And the increased volatility is unlikely to bother such long-term investors because they buy on average at cheaper prices than they do in times of constant stock market highs. If they have patience enough to sit the dent in the market (at least three years investment horizons should be), then they will later pay off if they continue buying stoically now and the quotes are up again year-over-year or three-year-old. Because that the market can handle this setback, that is considered agreed. The question is just