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Panic selling in an erratic stock market rarely pans out

We've written about this before, but it's worth a quick reminder today:

It rarely pays to sell into a panic.

Need proof? Consider this data from Mark Hulbert's column today. Ned Davis research looked at the worst 28 political/economic crises from 1940 to 2001 and found that, on average, six months later stocks were higher than they had been before the event. (None of these were minor — think the Fall of France in 1940, Pearl Harbor, 9-11, etc.)

After gaining roughly 34% since last July's correction low, the market is now off about 5% (including this morning's losses). Even without the recent events in Japan and the Middle East, this would be perfectly normal behavior after a positive run like we've seen.

As investors, there doesn't appear to be any particular reason for alarm.

As human beings, watching the suffering in Japan...that's another story. But it's important that we learn not to let our emotions spill over into our investment decision-making when confronted with situations like this.

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