Fool's School When to Panic

Many investors panic when the stock market (or sometimes just one stock) heads south. They get anxious, wondering whether they should follow the crowd and bail out. That is often the worst thing to do, though. Bad times can be good times to buy. As Warren Buffett has quipped, "Be greedy when others are fearful, but be very fearful when others are greedy."

Sometimes it does make sense to panic, though - such as:

When you do not know why you own what you own. If you have no clue why you bought shares of Farm Dogs Inc. (ticker: BINGO), you will have trouble determining when to sell. If BINGO shares plunge, it might be because of a fleeting problem, in which case you should hang on, or it might be because of some serious trouble. Informed investors should have a good handle on their investments.

When you do not understand the long-term upward trend of the market. From decade to decade, stocks in great companies and the market as a whole tend to rise in value. To keep your blood pressure down during market slumps, remember this.

When you have a short time horizon. If your moolah is invested in stocks for just a few months, then you can begin hyperventilating right now. As we have seen recently, anything can happen in the short term. Even stock in wonderful companies can temporarily plunge. Any money you expect to need within the next five (if not 10) years should be out of stocks and perhaps in CDs or money market funds. Learn more at

» READ MORE: www.fool.com/savings

and

» READ MORE: www.bankrate.com

.

When you have not learned that it is the percentage of the market drop that counts, not the points. A 100-point drop was a big deal when the Dow was at 1,000. But when it's at 10,000, 100 points is just 1 percent. (Of course, recent drops have been very meaningful.)

Read up on investing at

» READ MORE: www.fool.com

and elsewhere. The more you learn, the less you will panic.