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's 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 don't know why you own what you own. If you have no clue why you bought shares of Farm Dogs Inc. (ticker: BINGO), you'll have trouble determining when to sell. If BINGO shares plunge, it might be due to a fleeting problem, in which case you should hang on, or it might be due to some serious trouble. An informed investor should have a good handle on her investments.

• When you don't 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've 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 www.fool. com/savings and www.bankrate.com.

• When you haven't learned that it's 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 www.fool.com and elsewhere. The more you learn, the less you'll panic.