When the financial crisis hit, many long term investors was caught up in the hype of selling their long term investments(for various reasons). Those who did not sell ,have seen those values either return to the 2008 level or even surpass their 2008 values. So the question is "Does panic selling destroy long term values?'
on the flip side, doesnt it increase long term value?
EG You buy a share its "true value" is R200 in 2020. In 2000 you buy for R50, you get dividends for 10 years, 2010 has a major crash use those dividends buy more @ R50 again (even though it made highs of R100), and finally in 2020 it hits R 200.
So you managed to increase your position at a discount price.
Of course in 2021 there might be another crash and you lose it all again, so a lot of it depends when you finally take it out.
short answer is yes it does .. if we could sell at the top and buy the bottom then awesome .. but we'll miss both by miles and that destroys value .. so we hold on .. market was off 50% top to bottom in 08/09 .. but off those lows it is now up 300% and a long term investor doesn't even notice that blip any more ..
point is forget trying to time the market and don't panic when the wheels fall off coz they'll be replaced (an don't hold rubbish in your long term coz they get killed and don't recover)
I believe panic selling can enhance one's long term positions if one uses a strategy that factors this in. Exactly like what BC commented, one can acquire additional stock in a great company at a discount price in these situations, the only requirement is that one has a system that manages to accumulate capital (cash) over the time the markets are doing well, so that when panic selling occurs one has the power to actually participate in the buying activity that follows. Mr Market is irrational and if one can determine fair value it will be a good practice to build ones portfolio in these times. However, it all depends on the ability of the investor to determine if the company is at a discount or not, otherwise you can make a serious mistake! Does that make sense?
Smarter investors (institutional) will probably get money out before retail. Will probably be able to invest nearer to bottom then most, thus adding allot more value and liquidity and getting the market kick started...
I am quite sure they ride out the waves. if they were to sell the entire equity portions, it will crash the market.. there is just too much money in those funds (if you add them all together)... but thats just my opinion.