Knee-jerk reaction to investing

Yesterday, we were watching the result of the US Presidential election on TV. As it became evident that Donald Trump was going to win the race against Hillary Clinton, the stock markets in our part of time zone took a nose-dive. Trump’s win represented uncertainties in his policies and their impact on trades and economies.

Nikkei 225 Index lost 5.35% by the end of yesterday. Hang Seng Index lost 2.16%. Singapore’s Straits Times Index (STI) lost 1.08%.

However, the stock markets reverse course today. Nikkei 225 is now up 6.93%. Hang Seng Index is up 2.08% and the STI is up 1.37%. (at 1.48 pm)

The following shows the graphical image of STI over the course of the week.

STI taken from Yahoo! Finance

STI taken from Yahoo! Finance

The sudden drop in STI yesterday was a knee-jerk reaction to news of Trump’s win. Today, the STI is now back up. If we ignore yesterday part of STI, the STI just continues on its trajectory from the day before. If we sit out yesterday, investors would not know that the index went down in the market. Knee-jerk reaction to investing can prove to be unwise. That was what some investors did yesterday. They panicked into dumping shares first and ask questions later.

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