Market Crash (2020): Don’t Fall Victim to This Mental Mistake

With holdings such as CNR and BMO, investors should suppress the urge of loss aversion and refrain from selling off those stocks.

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Let’s have a quick survey and ask people what would they prefer: not losing $100 or gaining $100? The majority will go with not losing $100.

It is human nature to prefer avoiding a loss than to have a profit. Having a loss hurts more than gaining the same amount. It is called loss aversion and becomes apparent during market crashes like the ones we are experiencing right now.

Buying high and selling low is not an ideal investment strategy by any means. But investors often take this bitter sip to avoid further losses. However, one should keep in mind that it is not a loss until you sell. If you are holding stocks that have dipped significantly in the last couple of weeks but stand on solid fundamentals, you should consider avoiding selling such stocks.

Instead of locking in your losses with the sell-off, another option is to hold the stocks and wait for the crash to pass. If you own stocks like the ones below, you should consider going against your instinct to avoid loss in the present.

Reliable rail

Canadian National Railway (TSX:CNR)(NYSE:CNI) is the biggest railway network in the country, covering 20,000 miles across the continent. This government-owned entity has a market capitalization of over $75 billion and registered $15 billion in revenue last year.

Rail is the most reliable and time-tested means of transportation, and that goes in favour of CNR stock. Even the current market crash was not that hard on CNR stock in comparison to others. At a time when stock prices are getting slashed by more than half, CNR has registered a manageable dip of 13% in the last month or so.

Canadian National Railway oversees the transportation of a list of commodities and other essential items that remain in demand irrespective of the state of the economy. In other words, the current market crash and lingering recession likely won’t dent CNR’s operations and its stock permanently.

Cheap bank stock

Six months ago, Bank of Montreal (TSX:BMO)(NYSE:BMO) was a hot buy. It was paying a high yield with a promising growth trajectory. Fast forward to the present day, and it turns out that BMO could be an oversold stock with a dipping price-to-earnings ratio.

Bank of Montreal has become the face of the ongoing market crash. Soaring oil and gas loans and the crude price dip have bitten the bank really hard along with the further blow of the COVID-19 outbreak. The price is already down by around 40% in the last month.

However, there is some silver lining to hold on to. For instance, the bank still has a dividend yield of over 6% and may increase it further to make the stock a better buy. Like Ottawa’s multi-billion-dollar package for the oil and gas sector, the bailouts by provincial and national governments may improve the BMO’s outlook in the coming months.

Avoid loss aversion

If you’ve been losing sleep over your stock market losses, remind yourself why you bought those investments in the first place. If you’re confident they are good companies, it might be a mistake to sell them for a loss right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.

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