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6 Ways To Keep Your Emotions Out Of The Stock Market Drop

01/22/2016 10:14 EST | Updated 01/22/2017 05:12 EST
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stocks price in downtrend mode...

There is an emotional brain and an intellectual brain, and you want to use your intellectual brain in today's market. Going back to 2007-08 there were strategies that worked and they will work again today! If you look at historical mutual fund purchases and redemption everyone gets in when the market is going up and then blows out when the market is going down or at the lowest. If you keep using your intellectual brain you will do the complete opposite to that and profit.

Currently, too much oil being sold is pulling down the market. Saudi Arabia is playing chicken with the rest of the world, by not reducing their oil production. With all the new barrels of oil coming onto the market, there is a glut. None of the big oil producers want to decrease their production for fear of losing world market share and so everyone continues to pump oil. Plus, Iran has just had sanctions lifted and more oil will be coming on the market. This is a costly game and someone will eventually have to give or everyone will go bankrupt -- countries included like Saudi Arabia. The moment someone calls "uncle" the market will bounce back right away. And we all need to be ready for it.

Here are six steps to make sure that you don't make a costly mistake in this market.

1. Look out one or two years and focus on that. In Feb 2009 the TSX was at its lowest, and by February 2011 it had doubled back. It's too hard to guess when to get back in. Hide your statement when it comes next month and keep looking to the future. This isn't the end of capitalism. Not this time.

2. Dividend stocks generally don't go don't go down as much as other sectors. Today dividend stocks like Campbell's soup and Clorox were up for a bit in the US when the market was down. Almost 70 per cent of the stock market gains over history have been from dividends and if you hold a portfolio of them, you won't feel the same burn. In the last correction dividend stocks went down less than the entire market.

3. If you make monthly contributions double them for the months that the market is going down. It will give you some zip when markets go back up. Do the opposite of what your brain is telling you. Dollar cost averaging will flip this time of fear to be a time of opportunity.

4. Listen to the experts with your intellectual brain. We didn't lower interest rates in Canada and experts are saying that we don't have a fundamental problem. This is a big difference to the fundamental problem in 2007-2008 when our banks were collapsing. No one needs to get into the home made bunker in the back yard this time.

5. Refresh our memory from past corrections. We were at these TSX numbers in the summer of 2013, not too long ago. Remember when the ebola scare was happening? Where did that crisis go? And where did Greece's European Union ejection go? This current crisis will join Greece and ebola scares in the closet of forgotten trauma too. It's pure emotional selling, not based on fundamentals.

6. Call your advisor. That is what they are there for! Ring then up and talk to them about your comfort and what tactics you want to apply to your portfolio looking forward. They know you best, or should, and portfolios are a like made to measure suits or outfit. They are tailor made for you, your age, risk tolerance and life goals.