How to not panic (... or panic LESS) in the stock market

Speculation in Play #325 | March 24-28, 2025

We're human and therefore we're emotional. We can't help it. Just as market participants will chase a rallying stock as a result of the Fear Of Missing Out (FOMO), these same participants will often panic-sell their portfolio during a market drawdown for fear of losing their profits.

Of course, I'm not free from these emotions, either. Despite my 26+ years investing, I sometimes make mistakes when it comes to investing and my emotions. This is why I create buying (and selling) plans for all of my positions.

However, just having the plan isn't enough. I have to ensure that my emotions won't get the better of me when a stock is rallying or selling off. Every investor will need to figure out their own way to remove or reduce their emotions, of course, but, for me, I choose to enter my buy and sell limit orders into my brokerage in advance.

For each position I hold, I enter 2-3 buy orders and at least 1 sell order into my broker as Good Till Canceled (GTC) orders and I renew them whenever they expire. By having standing orders, I actually accomplish two different goals.

First, I want to ensure that I follow my investing gameplan. Since I performed the work when I wasn't emotional, I need to trust the work. I don't want to miss the opportunity to buy one of my stocks on sale at a price I knew was good just because I let my emotions get the better of me and panic during a systemic marketwide selloff.

Second, having standing limit orders allows me to take advantage of the market sometimes exhibiting strange and extreme volatility, typically to the downside. For example, in May 2010, the market had a "Flash Crash" where stocks suddenly sold off more than -10% on absolutely no news. Less than a half hour later, they all recovered. While the cause is still not agreed-upon, I happened to be sitting at my computer and was able to add to one of my positions at such a low price that my buy finished the day up more than 20%!

However, since I wasn't prepared for such a crazy event, I was only able to make that one buy in one position. I didn't get to add to everything. As a result, ever since, I've made sure to have at least 2 buys for every stock, one at my next buying target and another at a ridiculously low target just in case we ever see something like that again.

And, before you say it won't happen, it already did! In January 2023, a number of different stocks got slammed during a market glitch. Palantir Technologies (PLTR), a holding in my Speculation in Play portfolio at the time, filled my next buy order at $6.13 on January 24, 2023. However, if you look at the charts, the lowest Palantir dropped to on that day was $7.00 and it only dropped to $6.69 the next day before it started its incredible rally to $125, never dropping below $7.00 after the 25th.

Thanks to a market glitch, my limit order was filled at a price that "never existed" and my buy finished up +14.19% in a single day thanks to having standing limit orders at my broker!

However, like I said, even I'm not immune to letting my emotions cause me to make a mistake... just a month ago, in fact! Lemonade (LMND), now a position in my Investments in Play portfolio, reported earnings on February 25 and gave mixed guidance, causing the stock to sell off in extended hours trading.

I saw the price action and despite being a long-term believer in Lemonade, I felt that it could go much lower, particularly since it had rallied 3.5X from October to December in 2024! As a result, I lowered my buy limit order from adding at $27.09 to adding around $20.00.

Well, on the next day, Lemonade opened at $27.12 and dipped to $26.85 - it would have filled my buy order - before proceeding to rally +19.26% from the low of the day to the high! Investors realized that the mixed guidance wasn't as bad as some had thought and piled into the stock.

Despite performing all of the research in advance and deciding I wanted to add that potential level of support, I missed an incredible buying opportunity because I let my emotions get the better of me! Granted, if we see more volatility and the market sells off in the coming months, I may get a second chance to buy at that price, but I am still kicking myself for canceling that limit order and not trusting my work.

So, the long and the short of it is this - remember that we're long-term investors. That means we're in these positions for YEARS, not days, weeks, or months. As long as I believe in my investments and do the work in advance, using standing limit orders lets me avoid having to overcome my emotions in order to take the action I wanted to take when I was objective and clinical.

What are some strategies you've come up with to avoid emotion affecting your investing or trading?

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Premium Members:

Read on to discover the week’s biggest winner and loser in the Speculation in Play portfolio as well as all the moves I made this week in addition to my future buying and selling price targets for the positions that saw changes over the week.

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