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When Professional Traders Sell, You Might Want to Buy

Paul Price discusses who sells most when they should be buying.

You might be surprised at who panic-sells the most during market downturns. 

"Everybody claims to want to 'buy low and sell high,'" Paul Price wrote recently on Real Money. "Few people, including professionals who should know better, have the temperament to actually do so."

Price noted that “The esteemed research university MIT recently analyzed investment behavior in more than 600,000 accounts.Their key finding? Men, 45 and older, who classified themselves as experienced investors, were the people most likely to panic-sell during extreme market downturns like we experienced during the COVID-crunch in March of 2020.”

Now, of course there’s no reason that men of any age should know particularly more about investing than anyone else. (In fact, studies repeatedly show that female investors tend to outperform men by simple dint of the fact that they trade less quickly and less often.) But this extends to people who describe themselves as having “excellent investment experience.” Even these self-reported experienced investors are likely to dump anywhere from 50 percent to 90 percent of their holdings during a downturn.

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And this isn’t just the self-impressed amateurs either.

“We all know now that they would have been much better off sitting tight, or buying like crazy," Price wrote.

"It's not just that group that gets things 180-degrees wrong during stress-full times. The American Association of Individual Investors (AAII) surveys its membership each week, asking them if they are bullish, bearish or neutral. Their members pride themselves as being well-informed and knowledgeable investors. Even so, they also let their emotions get in the way of success. At the height of the COVID-panic, when there were some of the best bargains I've seen in 43 years of investing, bearish sentiment was the highest since 2013.”

People who invest for a living make this mistake all the time, Price writes. You can see it in professional portfolios, mutual funds and more. They trade scared, selling off valuable assets just because the market has started moving.

"Raise your game," Price urged. "Refuse to panic sell. Take advantage of others' foibles and buy when shares are on sale.”