From Jason Zweig at The Wall Street Journal:
A market crash is always scary, but this time the fear and panic of huge daily drops are compounded by the dread of a global pandemic. As the markets crash and the virus spreads, many of us are watching in unprecedented social isolation.
Investors need to understand the havoc this kind of stress wreaks on the human brain.
"Stress is going to make investors less of who they are, an impoverished version of themselves," says Peter Sokol-Hessner, a cognitive neuroscientist at the University of Denver. "It causes you to fall back on simpler methods of approaching your world. You have a decreased ability to use your experiences and knowledge to make smart choices in new settings."
Stress narrows your attention and focus.
Stress intensifies the negative. "As your threat sensitivity rises, you’re more likely to bias your predictions towards something bad happening," says Candace Raio, a cognitive neuroscientist at NYU Langone Health.
Stress can tatter your ability to think for yourself. "In looking for the quickest way to resolve uncertainty and to assure … survival," says Raio, "you might also be weighing what other people are doing more than the objective information in front of you".
Stress also impedes your working memory, narrowing the variety of choices you consider.
A few techniques can help.
First, take charge of whatever you can. To keep other people’s panic from dominating your decisions, decide what to do only when the financial markets are closed. Take small steps, not big leaps. If you feel you can calm yourself only by ditching some stocks, sell a fixed amount each month. And automate that. You could direct your dividends into cash, rather than shares, for now.
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