We all know that panic is one of the ways investors lose money.
Panic selling during the 2008-2009 global financial crisis may have driven some investors into in permanent class. Not only did they lose money, but they were unable to take advantage of the incredible recovery since then.
The panic during the March 2020 lockdowns caused many people to lose tons of money instead of making money that year. Meanwhile, panic selling at the start of almost every war has generally been a losing proposition even in the long run.
If you want to become one competent investoryou must learn not to panic when the world becomes uncertain. But not panicking is easier said than done when you’re watching your portfolio rapidly lose value.
Dealing with emotions is why we practice asset allocationso we remain versatile enough to handle whatever life throws at us. It is the undisciplined investor with poor risk management who tends to blow himself up.
But how panic makes us lose money in a non-investment way? I have one last example to share.
I lost my money in a panic
regardless of intentional feeling while painting a newly installed door in my rental house, I ran into a snafu. I had to prime the door first before applying the exterior and interior paint.
Instead of going to the store to buy new primer, I remembered I had a gallon at my other rental property nearby. So I went and punched in the garage code, which didn’t work. I then emailed my tenant for the correct code but she did not respond. So I texted my wife, who gave me the correct code. Cold.
Once 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 keyboard to close the garage door, it would only go down a few inches before coming back up. I tried several times before I noticed that the laser sensor on the bottom was missing.
I checked the control panel inside the garage and the display also said “sensor warning”. Even when I pressed the interior button, the door wouldn’t close either. Frustrated, I went back to my other rental property to continue preparing while I sent the tenant another email asking where the sensor was.
Everything was working fine before they got inside. So I assumed their car might have dropped the sensor and broken it. But of course, I couldn’t accuse my tenants of breaking the sensor because I had no proof.
The onset of Panic
I decided to continue preparing while I waited for her email response. After about 10 minutes, I started to feel anxious. I was hoping the garage door would close by itself, but when I went out to check again, it was still open.
At the same time, I didn’t want the paint on the 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 get the job done quickly because my tenant worked in the other office. He’s nice, but I have a feeling he’d rather see as little of me as possible, which is great.
Hmm, what to do.
Since I didn’t want to leave the garage exposed – since it had some of my tenant’s things in it and a door leading to the house – I decided to call a garage door service company and write to my tenant to explain the situation. My tenant still hadn’t responded so I had to make an executive decision.
She apologized for not getting back to me sooner, saying she had been in a meeting. Totally understandable. She said that fixing the garage door was already on her to-do list and that to close the garage door, she just had to keep holding the inside button.
Darn. Why didn’t I try it? All I had done was quickly press the button a few times.
I then told him that I had already called a garage door service company and was wondering if I should cancel since there was a $95 service fee plus parts and labor if anything needed fixing. Because the garage door had worked fine before, I wanted her to pay for the full repair. But I also wanted to be fair.
So I came up with a compromise. I just asked her if she would be willing to split the cost 50/50.
Initially, she said she would prefer to handle the problem herself. But she quickly realized that me paying half and fixing the problem as soon as she was at work was a no-brainer. This saved them time and money, especially if they were the ones who broke it.
The Surprise Fix
I figured the garage repairman would arrive in about 30 minutes, so I went back to my other rental property to finish the prep.
But only about seven minutes later, I got a call saying it had arrived. So I put down all my painting equipment and went back.
He quickly checked the problem and found the missing sensor behind the rail, buried under some mesh! Ugh, why didn’t I take a closer look?
He said he could replace the sensor for $275 but I would have to move the car so he could reprogram the above engine. Since I didn’t have the renter’s car keys, that wasn’t possible.
The other solution was to just stick the sensor on the support arm and see if that worked. With no other choice, I told him to go with the taping option.
IN under four minutesthe sensor was working again and the garage door closed properly with a push on both keypads.
He then wrote the bill for $95. I asked him if he could make me a deal since the job was so fast. No.
Ugh. I felt so stupid spending so much on a job a 5 year old could do in the same amount of time.
To make myself feel less stupid, I went back to paint the side door for another 35 minutes, cleaned it, and headed home before sending the tenant the bill and the good news that everything was fixed. She was thrilled and sent me an additional $47.50 with the next rent payment.
Taking your time is important
If only I hadn’t panicked and called the garage repairman.
I should have closed the ink cap, used the ink in the tray, saran wrapped my roller and brush (which I didn’t have), and just spent three minutes looking for the sensor. I most likely would have found it myself and put it back in place, saving $95.
Instead, I let my mind wander to two things: paint drying and someone stealing something from my tenant’s garage.
When you don’t have enough mental latitude, your brain loses the ability to think rationally. As a result, you sometimes spend more money than you should.
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, hustle usually costs money.
Here are some ways to reduce panic and make better decisions.
1. Rest before acting
When something goes wrong, pause briefly before making a decision. Even a 5-10 minute break, if time allows, can calm your emotions and help you think more logically.
Most problems are less urgent than they first appear.
2. Try the simple solution first
Before calling a professional or spending money, take a few minutes to troubleshoot the problem yourself.
Look around. Test several options. Many problems have surprisingly simple solutions.
3. Avoid artificial time pressure
Much of the panic comes from feeling rushed. In my case, I was worried about drying the paint and opening the garage. I probably had more than 20 minutes before the primer dried on my brush and roller. And if I took 15 minutes longer, I don’t think my tenant would have cared.
Meanwhile, the houses were in a quiet neighborhood with little or no traffic. The chance of someone breaking into the garage to steal something was less than 1%.
4. Give your brain enough latitude
When you multitask, your ability to think clearly declines. Multitasking often leads to costly mistakes. Sometimes slowing down actually saves time and money.
5. Remember that most problems are temporary
When something unexpected happens, our brains often jump to worst-case scenarios.
But most problems are minor and temporary. Taking a moment to zoom in can prevent unnecessary financial decisions.
The ironic thing is that panic rarely solves problems faster. It usually just makes them more expensive.
The next time you feel the urge to rush into a decision, pause for a moment. You can save yourself a lot more than $95.
Readers, have you ever had a non-investment panic scenario that cost you money? How do you learn to stay calm under uncertainty to make better decisions?
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