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When Your Stocks Crash, Here’s 1 Thing You Shouldn’t Do

If you find that your stocks are down since 2015, don’t be surprised.

For instance, Singapore’s market barometer, the Strait Times Index  (SGX: ^STI), has fallen by 26% from its peak in 2015 (reached in April) to last Friday’s close.

Furthermore, only seven of the 30 stocks that make up the Straits Times Index had produced a positive return in 2015. The three worst stocks came from the likes of Noble Group Limited (SGX: N21)SembCorp Marine Ltd (SGX: S51), and SembCorp Industries Limited (SGX: U96).

In such a situation, where it’s likely that your stocks have fallen hard – or even crashed – what can you do? Thing is, it may be instructive to start with things you shouldn’t do.

Here’s one: Have the idea that “I have made a mistake. I am a terrible investor.”

If you had started investing only in 2015, there is a high probability that your portfolio’s deeply in the red right now. If you have been investing for many years, then there is also a high probability that your stocks are down from where it was a year ago.

The ten months between April 2015 and today can feel rough. You might doubt your stock picking ability as the shares that you have picked up in 2015 have tanked.

But, we should not feel that way. We all have to start from somewhere. Take this little story about Warren Buffett’s first ever stock purchase that was published by Wall Street Survivor on our sister-site Fool.com:

“When he was just 11 years old, Warren Buffett pooled his savings with his sister Doris and bought six shares of oil company Cities Service (now called Citgo) at $38 per share.

From visiting his father’s stock brokerage and chalking in stock prices on the blackboard, he had marked this out as an undervalued stock and was confident he and his sister would make money.

What Happened Next: In the first few months, the stock dropped almost 30%, and Doris harassed him every day about the money they had lost. When Cities Service finally recovered to $40 a share, he quickly sold to book a small profit.

But then the young Buffett watched from the sidelines as the stock soared to $200 a share. His original investing rationale had been vindicated, but it was too late.”

As you may gather, the young Buffett did not enjoy the best start to his investment career. But he stuck to it, and is today considered to be one of the best investors of our lifetime.

Foolish takeaway

The key point is this – we are not terrible investors just because our shares have tanked. Likewise, just because our shares have seen their prices drop over the short-term does not mean that we have made an investment mistake.

When faced with market declines, it is important to distinguish between temporary losses and permanent losses. Permanent losses occur when there is permanent damage to the underlying value of a business.

As such, now could be the best moment to use our time to read and understand the underlying business performances of all the stocks we’re interested in. By doing so, we may catch sight of stocks that have displayed a poor performance in the market and yet have produced a great business performance. In turn, it may then lead us to stocks that can outperform over the long-term.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.