We all know that panic is one of the ways investors lose money.
Panic selling during the global financial crisis of 2008–2009 may have put some investors in a permanent low. Not only did they lose money, but they also weren’t able to profit from the incredible recovery.
The panic during the lockdown of March 2020 caused many people to lose a lot of money instead of earning money that year. Meanwhile, panic selling at the beginning of almost any war has generally been a loss-making deal, even in the long run.
If you want to be a competent investor, you have to learn not to panic when the world becomes uncertain. But it’s easier said than done to panic when you’re watching your portfolio’s value rapidly decline.
We practice asset allocation to deal with emotions, so that we remain diversified enough to face whatever life throws at us. It is undisciplined investors with poor risk management who ruin themselves.
But how does panic cause us to lose money? non investment way? I have a recent example to share.
How panic ruined my money
Despite feeling purposeful when painting a newly installed door in my rental home, I ran into confusion. Before applying the exterior and interior paint I needed to prime the doors.
Instead of running to the store to buy new primer, I remembered to keep a gallon at my other rental property nearby. So I went over there and punched in the garage code, which didn’t work. I then emailed my tenant for the correct code, but he did not respond. So I messaged my wife, who gave me the correct code. Cold.
Once I was in the garage, I immediately found the gallon of primer on the side shelf and headed out. But when I pressed the enter button on the keypad to close the garage door, it only went down a few inches before coming back up. I tried several times and noticed that the bottom laser sensor was missing.
I checked the control panel inside the garage, and “Sensor Warning” also appeared on the display. Even when I pressed the button inside the door did not close. Frustrated, I went back to my other rental property to continue priming and sent another email to my tenant asking where the sensor was.
Everything was going well before they went inside. So I assumed that the sensor in his car must have gone off and it must have broken down. But of course, I can’t accuse my tenants of breaking the sensors because I had no proof.
beginning of panic
I decided to continue priming while waiting for his e-mail response. After about 10 minutes I started feeling uneasy. I was expecting the garage door to close on its own, but when I went up to double check, it was still open.
Plus, I didn’t want the paint on my brushes and tray to dry. They were sitting outside in the hot sun, and I had forgotten to bring Saran wrap. I also wanted to finish the work quickly because my tenant was working in the next office. He’s nice, but I think he’d like to see me as less often as possible, which is great.
Hmm, what to do.
Seeing as I didn’t want to leave the garage open – since it contained some of my tenant’s belongings and had a door leading into the house – I decided to call the garage door service company and text my tenant to explain the situation. My tenant still had not responded so I needed to make an executive decision.
She apologized to me for not coming back sooner and said she was in a meeting. Totally understandable. She said that fixing the garage door was already on her to-do list, and to close the garage door, all she had to do was press and hold the button inside.
Shame. Why didn’t I try that? I just pressed the button several times in quick succession.
I then told him I had already called a garage door service company and was wondering whether to cancel it, since there would be a $95 service fee plus parts and labor if anything needed to be fixed. Since the garage door was working fine before, I wanted him to pay for the entire repair. But I also wanted to be fair.
So I came up with a compromise. I simply asked if she would be willing to split the cost 50/50.
Initially, she said she would prefer to handle the problem herself. But she soon realized that it was easier for me to pay half while she was at work and fix the problem as quickly as possible. This saved him time and money, especially if they were the ones who broke it.
surprise solution
I figured the garage repairman would arrive in about 30 minutes, so I went back to my other rental property to complete the priming.
But after about seven minutes I got a call that he had arrived. So I put away all my painting equipment and went back.
He immediately investigated the problem and I found the missing sensor buried under some cobwebs behind the rail! Uh, why didn’t I look more carefully?
He said he could replace the sensor for $275, but I would have to shake the car so he could reprogram the motor above. Since I didn’t have my tenant’s car keys, this wasn’t possible.
The next solution was to simply tape the sensor to the support arm and see if that worked. With no other option, I asked her to go for the taping option.
In less than four minutesThe sensor was working again, and the garage door closed properly with a press on both keypads.
Then they wrote an invoice for $95. I asked if he could deal with me because the work was very quick. No.
Ugh. It seemed foolish to me to spend so much on a task that a 5 year old could have done in the same amount of time.
To make myself feel less stupid, I went back for the next 35 minutes to paint my side door, clean up, and drive home before sending my tenant the receipt and the good news that everything went well. She was thrilled and sent me an additional $47.50 with my next rent payment.
It’s important to take your time
I wish I hadn’t panicked and called a garage repairman.
I should have closed the paint lid, drained the paint in the tray, saran wrapped my roller and paintbrush (which I didn’t have) and just spent three minutes looking for the sensor. I probably could have found it myself and taped it back in place, which would have saved $95.
Instead, I let my mind think about two things: paint drying and someone stealing something from my tenant’s garage.
When you don’t have enough mental capacity, your brain loses the ability to think rationally. As a result, you sometimes end up spending more money than necessary.
How to avoid panic and make better financial decisions
Panic rarely leads to good financial decisions. Whether it’s investing, running a business, or dealing with everyday problems, being in a hurry usually costs money.
Here are some ways to reduce panic and make better decisions.
1. Pause before acting
When something goes wrong, pause before making a decision. If time permits, even a 5-10 minute break can calm your emotions and help you think more logically.
Most problems are less urgent than they initially realize.
2. Try simple solutions first
Before calling a professional or spending the money, spend a few minutes troubleshooting the problem yourself.
Look around. Test some options. The solution to many issues is surprisingly simple.
3. Avoid artificial time pressure
Most anxiety comes from feeling rushed. In my case, I was worried about the paint drying and the garage being open. The primer probably took about 20 minutes to dry on my brush and roller. And if I had taken 15 minutes longer, I don’t think my tenant would have cared.
Meanwhile, the homes were in a quiet neighborhood with little to no foot traffic. The chance of someone going into the garage and stealing anything was less than 1%.
4. Give your brain enough bandwidth
When you are juggling too many tasks at once, your thinking ability obviously reduces. Multitasking often leads to costly mistakes. Sometimes slowing down actually saves both time and money.
5. Remember that most problems are temporary
When something unexpected happens, our minds often assume the worst.
But most problems are small and temporary. Taking a moment to zoom out can prevent unnecessary financial decisions.
The irony is that panic does not solve problems faster. This usually makes them more expensive.
The next time you feel rushed into making a decision, stop for a moment. You can save over $95.
Readers, have you ever had a non-investing panic situation that cost you money? How do you learn to remain calm in uncertainty to make better decisions?
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