A cool head will get you through this mess, writes The Motley Fool

Now that America’s credit rating has been downgraded, how is the market going to respond this week?

No one knows. It could be nothing, or it could be ugly. Maybe this is a wake-up call; maybe the damage is already priced in.

Or maybe not. The Australian market slumped another 2% in Monday morning trading, taking the 2011 plunge to date to over 15%.

As shown below, there has been virtually nowhere to hide.

Company Year to date share price change
BHP Billiton (ASX: BHP) -16%
ANZ (ASX: ANZ) -18%
QBE Insurance (ASX: QBE) -19%
AMP Limited (ASX: AMP) -25%
Leighton Holdings (ASX: LEI) -37%
Insurance Australia Group (ASX: IAG) -21%
ASX Limited (ASX: ASXC) -25%
Qantas Airways (ASX: QAN) -34%
CSL Ltd (ASX: CSL) -22%

Source: Capital IQ, a division of Standard & Poors

It gets every uglier when you look at some former high-flyers, companies like Indophil Resources (ASX: IRN), Energy Resources of Australia (ASX: ERA), Bluescope Steel (ASX: BSL) and CSR Limited (ASX: CSR), all of whom have fallen 50% or more in 2011.

Feeling your pain

As fellow investors, we understand the uncertainty you’re feeling. Like you, we don’t like to see our stocks and portfolios fall. And like you, we’re paying close attention to the events that are causing a stock market sell-off unseen since the financial crisis of 2008.

But, it can’t be stressed enough that the computerised trading controlling daily market movements have little in common with the long-term, business-oriented view of most Motley Fool investors.

Computers don’t panic. They just follow simple rules. Those rules have nothing to do with the intrinsic value of businesses. They’re more about a game of pre-empting one another — computers trying to buy and sell before other computers buy and sell.

Take a deep breath

If it comes, a sell-off this week isn’t necessarily indicative of panic and gloom. It could simply be the actions of short-term investors who are trying to get out first as they perceive that others will be panicky and gloomy. This is why it’s so important to ignore short-term market moves and focus on business values.

Whatever happens, our advice to you is the same as it been for the past 18 years. Take a deep breath, stay calm, and keep your emotions in check.

History is on the side of the investor who remembers that investing is a multiyear endeavour served well by patience.

More from The Motley Fool:

Free report: Read this before the market crashes (it’s never too late)

4 things to remember as markets get wild

3 stocks to buy now

Motley Fool staff and freelancers may have interests in any of the stocks mentioned in this report. These interests can change at any time. The Motley Fool has a living, breathing disclosure policy.

OUR #1 DIVIDEND PICK FOR 2016...

Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.