Why do stocks fall before profit

Price fall? How to do it right

IS strikes around the world, states are on the brink of recession, central banks on uncertain ground: on some trading days, prices fall sharply around the world - and some investors panic. You don't - if you set up your portfolio with a clear crisis-proof strategy.

How should investors optimize their investments in the stock market under these conditions? And what is the guideline for prudent action? If you want to know, you should pay attention to what the managers of the large funds are doing during the crisis. Such professionals often follow one guiding principle:

Minimize losses, let profits run

This is how professional investors avoid falling into the abyss. Many private investors, on the other hand, keep their handful of shares even when the price goes down and down, because they think: It's too late now anyway. If, on the other hand, the price rises a little, they sell the shares in order to secure the small profit. Whoever acts like this melts his own fortune. But there is another way - if investors don't join in the panic that sets the tone on the stock exchanges on all too many days. So that you can keep a cool head, biallo.de gives you Answers to the most important investor questions.

Will the price fall continue bottomlessly?

No. There is no such thing as a fall into the abyss without a recovery in prices on the stock market - and investors should act according to this certainty. Even after major crashes like the late twenties, nineties or seven years ago, the markets recovered surprisingly quickly - and often even reached new record highs.

Almost bottomless losses are possible, however. This is mainly done by those who are now panicking at the lowest prices - and who, out of the same panic, do not acquire any new funds or shares at the lowest prices. Do not let yourself be put off by the supposedly “magical” price levels that some of the media are talking about. Whether the Dax is just above or below 10,000 points has at most a psychological effect on a few occasional investors.

But the courses are essentially driven by highly professional strategists who, for example, have to invest the billions of pension funds profitably over the long term. They cannot be moved by short-term fluctuations above certain price levels when investing. Read more about strategy below.

Price slump - sell funds quickly now?

No. For now, keep a cool head. First of all, it may be that the fund you own is not invested in stocks at all or is mainly invested in stocks. The question of how dependent it is on what is happening on the stock exchange is often answered by looking at the online depot. The most important individual papers can be found there - and also the development since the beginning of the year. This often already provides information on whether your fund has been significantly influenced by the ups and downs on the stock markets.

Then there is the consideration: Do you even need the money right now? Or can you get through a phase of weakness on the stock exchanges? Here, too, a look at the long-term development of your paper (for example the annual return over a ten-year period) can give you a good feeling for the long-term performance. And thus also an answer to the question of whether an end with horror through a quick sale is a sensible reaction to the collapse in prices.

Falling prices - how can I cover myself?

Your funds don't have to fall and fall - you can protect yourself: You can do this with individual funds that have built-in such security mechanisms, but which do not take the entire price upswing with them in the event of a boom. Such hedging is also possible with warrants. To do this, however, you should already be very familiar with the stock market - and also be able to precisely define your investment goals and timing. Such a strategy is therefore not recommended for normal investors.

What, however, many investors have long been doing to hedge - without registering it: hedge against the temporary fall on the stock exchanges takes place for normal customers simply because they have usually invested the majority of their financial investments elsewhere: in endowment life insurance, for example, in real estate, in overnight or fixed-term deposits and also by paying into the pension fund. The value development of these large investments of the average earner is largely unaffected by stock market events. In the case of real estate, it can even benefit if the investment on the stock exchange is less lucrative due to the fall in prices. Then the demand for “concrete gold” increases - and with it the value of property.

Will real estate and fixed-income investments suffer after the drop in the stock market price?

Anyone who has read the previous answer could simply say no. But the situation is not that simple. On the one hand, a prolonged slump in the stock markets could also put funds that invest in real estate under pressure. The insolvency of the open real estate funds like SEB Immoinvest or CS Euroreal has shown that terrifying. On the other hand, the general level of interest rates can fall if the real economy is dependent on cheap money from the central banks, as it was in previous months because of the market crises. With overnight money, however, you can at least hibernate the capital that is freed up with the best providers - until, for example, you dare to invest in cheaper stocks again.

Should I now invest all of my savings in gold or real estate?

Bad advice: never just bet on one horse - this also applies in times of stock market fluctuations. Just as the normal investor invests his money without being fully aware of it, this is also pretty much correct: a part in fixed-income paper with different terms, endowment life insurance, the home used by the owner, but also in the capital markets - that is one good strategy for investors with a long horizon.

The gold price fell sharply in 2013 - and previously rose sharply. Seen in this way, investing in gold is at best possible as an addition to the overall investment with a single-digit percentage. Because gold is also a speculative asset - and not a safe haven.

Price slump - if the Dax falls, will every fund fall with it?

No. Large parts of the investments there have not been affected by the slump in the stock markets - and many funds or even warrants even benefit from falling stock prices. Investors should therefore always find out exactly what the investment is in which they are investing their money via a fund, for example. Above all, there is one thing you should keep in mind: Never invest in something that is traded on the stock exchange that you do not fully understand. No way! This way, a rude awakening can be avoided right from the start.

Course capers: How do I make my depot immune?

Disciplined investors who invest in normal funds and not in highly speculative products can use a method to protect themselves against suffering large losses - and at the same time make large profits possible. The author calls it the ten percent rule. It just works like this:
  1. If you buy something that is listed on the stock exchange, you should mentally subtract ten percent from the purchase price - and make a note of this value. You should also note down a rate of ten percent plus.
  2. If the price reaches the ten percent loss mark, the paper is sold immediately! So you never suffer more than that ten percent minus.
  3. If the price reaches the mark of ten percent price gain, then the arithmetic and noting starts all over again - ten percent minus starting from this new mark is the selling price; ten percent plus the rate that is now being re-calculated.

Stock marketers also know this method as the rule: limit losses, let profits run. It works - as long as you don't deceive yourself and stay disciplined. What can help: You can enter the relevant stop rates when you buy a paper - and with good custodian banks you can even sell it automatically at a selected rate.

Money houses wobble - is overnight or fixed-term money insecure now?

Do not let yourself go crazy: overnight and fixed-term deposits in the usual amounts of less than 100,000 euros per private investor are extremely secure. The European or German deposit insurance ensures that the investor does not suffer a loss even in the unlikely bankruptcy of the bank. In addition to the German bank security, many financial institutions also offer security associations, through which the investments of the individual customer are secured in the double-digit millions.

What are the basic rules for investing in the stock exchange?

  1. Never speculate with borrowed money
  2. Never with money that is actually scheduled for something else on a fixed date. This means:
  3. For example, you should always stay liquid enough on a fixed-term deposit account so that you don't have to sell investments there when the stock market is bad because you need the money.
  4. What cannot be repeated enough in the end: Never invest in an investment that you do not fully understand.

Should normal investors not invest in the stock market at all?

If "normal" means - Investors who cannot bear fluctuations in the value of their investment, then the answer is: Stay away from most funds, stocks or even warrants. But if you do not invest any part of your savings in the stock markets with a long time horizon, you are missing out on one of the most profitable investment opportunities. According to an evaluation by the Deutsches Aktieninstitut, the average performance of the German share index from 1949 to the end of 2006 was exactly 12.3 percent per year. Fixed-income, but also many funds, insurance companies and bonds cannot keep up.