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Psychology of sell-offs

ended 04. February 2026

In your experience, do too many retail investors make the mistake of selling during sell-offs, especially sharp sell-offs? Gold is the latest high profile example. Gold rose to over $5,630 an ounce last week then hit the deck shortly afterwards, briefly dropping below $4,500. Today the yellow metal has dusted itself off and is back above $5,000. Equally, silver, soared to as high as $122 over the past week and then fell to just above $72. It's now back flirting with $90 again. Whatever the reasons for the gold and silver crash - institutional sell-offs or the appointment of a more hawkish US Federal Reserve Chair, Kevin Warsh - both are examples of when a paper loss can become a significant financial hit if you sell. What's your advice to people invested in asset classes that collapse rapidly? How important is it that investors sit tight and ride out the volatility? Is it fair to say that the faster the collapse in an asset price, the more likely it is to rebound — or is that utter gibberish? Any thoughts, send them across ASAP as we're writing this story this AM.

6 responses from the Newspage community

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Editor
Rob Mansfield
Independent Financial Advisor at Rootes Wealth Management
It's very easy to get lost in the moment. A sharp drop can feel like the start of a snowball tumbling down a mountain. It's really important to remember why you bought an investment and what your time horizon is. If you're speculating and looking for quick profits then a sell off can be damaging but if you're investing for the long term, sell offs are inevitable. They can give opportunities to top up at a lower price. Discipline is vital as it helps you buy assets at sensible prices and hold on when things become a bit rocky.
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Scott Gallacher
Director at Rowley Turton
Sharp sell-offs are exactly when many retail investors do the most damage to their long-term outcomes by reacting emotionally rather than rationally. A paper loss only becomes a permanent loss when you sell.

For investors with a well-diversified portfolio, invested for long-term growth and with no short-term need for the capital — perhaps drawing no more than around 5% a year — short-term market noise can usually be ignored, even if parts of the portfolio are uncomfortable to watch. That discomfort is often a feature of proper diversification: something will almost always be underperforming at any given time.

Where investors get into trouble is when they lack diversification, have a short time horizon, or don’t fully understand what they own. In those cases, the key question isn’t whether prices have fallen, but whether the original investment case and fundamentals still hold — and whether the investor can cope financially and psychologically with further volatility.
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Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
Some people take about momentum investing, as in ‘jumping on the bandwagon’ and riding the wave. The problem with this is that we often miss the wave and jump in just as it crashes. When things are doing well it’s human nature to want some. As Gordon Gekko said, “Greed it Good”. The safest way to make a return though, is looking at fundamentals, backing decent companies and staying the course. Try and be Warren Buffett, not Neil Woodford.
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Philly Ponniah
Chartered Wealth Manager and Financial Coach at Philly Financial
Sharp sell offs trigger fear, and fear pushes people to forget why they invested in the first place. Price moves alone are rarely a good reason to sell. If the original case for holding an asset has not changed, reacting in the heat of the moment often turns a temporary paper loss into a permanent one. Diversification matters here too. When people are over exposed to one asset, volatility feels unbearable and bad decisions follow. Fast falls do not guarantee fast rebounds, so it is wrong to assume prices will always bounce back. But sharp drops are often driven by emotion, forced selling, or positioning rather than long term value. That is why snap back rallies are common once the panic fades. The goal is not blind patience, it is having a plan, a time horizon, and position sizes you can live with.
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Anita Wright
Chartered Financial Planner at Ribble Wealth Management
Much of what investors see on a screen is the price of leveraged paper claims, not the settled value of metal changing hands in size. In a stressed environment, the paper market does what all leveraged markets do: it hunts liquidity, it runs stop loss orders, it forces weak hands out..
That is why retail investors so often sell at precisely the wrong moment. They are not selling because the monetary reality changed overnight; they are selling because the paper market moved violently and their risk tolerance was revealed as theoretical. When leverage meets volatility, liquidation becomes indiscriminate. Sound assets get sold to meet cash calls elsewhere. That is not a judgement; it is mechanics. Most retail pain in these episodes is not because metals are “bad” assets; it is because people own them in the wrong form, in the wrong size, for the wrong reason and then the paper market does what it always does during stress: it punishes the fragile
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David Belle
Founder and Trader at Fink Money
The reason gold and silver fell is because the CME increased margin requirements on futures contracts. This meant that to hold the same amount of contracts, there needed to be more cash in the account. Some decided therefor to de-lever and hold fewer contracts.

So yes it was a lack of demand, but the lack of demand came from people not wanting to be as exposed and not a macroeconomic or other factor.

When there has been such involvement in the market as there was, this will cause ripples across other assets, as traders rush to sell other assets to maintain their long positions in the silver/gold contracts (by shoving more cash into their accounts).

Without this fundamental understanding of why gold and silver sold off, you cannot provide an insight into how investors should position themselves.

Generally, however, you should not be too concerned about one day of price action if you are not leveraged (so if you have bought SLV/GLD or the UK listed equivalents).