Market sudden rises and falls

As a share investor with a portfolio of shares you’re faced with a quandary when the market as a whole or one of the shares you own suddenly rises or falls. What should you do – how should you react?

It’s usually not a good idea to run in the opposite way to the herd. The market has a mind of its own and like it or not you need to keep your pulse on the market if you’re going to be a successful share investor. It’s expressed by the saying:

The market is always right

The logic behind this saying is that the market sets the price of a share so in that regard the market must be right. For example you may think that a share is undervalued by the market so you buy some in the expectation of a price rise but instead the price goes down. Who’s right – you or the market? Well you might be right in that the fundamentals of the business might be good and indicate the share is being undervalued by the market but if the price is falling the market is right in the sense that the market reckons the share is overvalued. Remember you can’t trade a share for any price other than around the market price.

At the same time – and as I’ve said repeatedly in all my books, I counsel you not to blindly follow the herd. A good instance of what I mean is that on Friday Feb 6 2026, the market – out of the blue –  dropped about 2%. A significant drop in anyone’s language. If you were blindly following the herd you would have panicked and sold. Then after the weekend on the following Monday guess what happened? The market rose about 1.85% and recovered almost all the fall! In fact by the end of the week the market was up overall.

So there you have the essence of the quandary you often face as an investor. On the one hand you can’t ignore market fluctuations but on the other hand, the market often exhibits signs of irrational panic or hype.

So as a share investor what do you make of all this? Where does it leave you?

My solution to this dilemma is to take a longer term view. Certainly look at the charts and see what the market or a share price is doing and what it’s likely to do in the future but do so in the context of the longer term. Ignore the day to day white noise or static of the short term market or share price fluctuations. Just don’t panic when the market or share price suddenly falls or get hyped up with irrational optimism when the market or share price suddenly rises. Look at the longer term picture and act accordingly by following your longer term plan. Use the fundamental and technical analysis methods outlined in my books to make a rational decision – not an emotional one based on panic or hype.

If you do this you’ll successfully negotiate the often irrational market or share price fluctuations and keep your eye firmly on the longer term picture. If your analysis has been sound, the longer term picture should work out in your favour in most cases.

There’s another good saying that encapsulates all this:

The stock market is the trading place where money transfers from the impatient to the patient