5 lessons from a volatile stock market week

Stay true to your investing strategy, whatever the market does

a woman

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Stay true to your strategy, whatever the market does, writes The Motley Fool.

What a week.

Source: Bloomberg

Here at The Motley Fool, we've been urging investors to stay calm throughout this unprecedented stock market volatility.

We know how difficult, and painful, it is to see your portfolio smashed. We're real investors too.

And when markets are crashing, people assume stocks will keep going down, and down, and down, never again to rebound. It's called the recency effect. We extrapolate what is happening now out into the future.

Stop the pain!

In the face of economic uncertainty and extreme stock market volatility, the natural urge is to sell out just to stop the pain. We know of at least one retiree who did just that. We can sympathise.

Yet it's in times like these when we must keep our eye on the big picture. For investors like us, that's the generation of wealth over the long-term.

In 5 years time, probably far less, this week will long be forgotten. It will be just another wiggle in the chart of the ASX/S&P 200.

5 lessons of the week

But hopefully the lessons won't be forgotten.

1. Share prices are volatile.

2. Weeks like this will happen again.

3. Real businesses underlying the stock prices are continuing to prosper.

4. Stocks can go up as well as down.

5. Using excessive leverage to juice your returns means you might be forced to sell right at the bottom of the market.

Speaking of which, from its low point this week, the S&P/ASX 200 is up around 10%. Imagine if you'd panicked and sold, right at the low point on Tuesday morning? You'd be feeling pretty sick right now.

Calmly buying

Our Analysts here at the Motley Fool have been calmly suggesting investors buy shares, not sell.

It was only a week ago when The Motley Fool's Investment Analyst Dean Morel named Telstra (ASX: TLS) his number one ASX 20 pick for the long-term.

Read more -> Telstra: Still our top blue chip stock

Sticking with Dean, in the teeth of the bear market, he stuck out his neck and calmly declared it's time to buy the big Australian banks. Take your pick from Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB), Australia & New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corporation (ASX: WBC).

Read more -> Banks. It's time to buy

Myself, Dean and Motley Fool Feature Columnist Scott Phillips put our heads together to come up with some stock ideas for investors looking to put some cash to work amid the volatility.

Read more -> 5 Stocks for this choppy market

End of the bear?

With Wall Street soaring 4.5% overnight on the back of easing concerns about the U.S. economic recovery, does that mean we're at the end of this extreme volatility?

It's impossible to know. But whatever happens, your investing strategy should remain the same, namely to buy good companies at cheap prices, and focus on the business, not the share price.

It has been an interesting week, possibly a stressful one. Enjoy the weekend, Fools.

Read more:

Free report: Read this before the market crashes

Of the companies mentioned, Bruce Jackson has an interest in TLS, ANZ, CBA, NAB,and WBC. The Motley Fool has a calm disclosure policy.

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