# How Investors Actually Behave During Market Crises
When stock markets crash, investors rarely act rationally. Clare Flynn Levy, a behavioral finance expert, identifies five distinct patterns that emerge when portfolios take heavy losses.
Most investors fall into predictable traps during downturns. The first is panic selling. Investors watch their account balances shrink and immediately dump holdings at the worst possible time, locking in losses. This happens even among sophisticated portfolio managers who theoretically understand market cycles.
The second pattern involves anchoring to past highs. An investor who bought a stock at $100 watches it fall to $50 and refuses to sell, convinced it will return to its previous peak. This emotional attachment prevents rational rebalancing and leaves money trapped in underperforming positions.
Herding represents the third behavior. When everyone around you sells or talks about market doom, the pressure to follow the crowd intensifies. FOMO, or fear of missing out on recovery gains, pushes some investors the opposite direction, chasing gains recklessly after the downturn stabilizes.
The fourth trap is overconfidence bias in reverse. After losses, investors often become overly cautious, selling solid investments and moving everything into cash or bonds. They swing from one extreme to another rather than maintaining a disciplined allocation strategy.
Finally, investors engage in selective attention. They obsessively check portfolio values during downturns but ignore them during recoveries, creating a mental pattern that amplifies loss anxiety.
Understanding these five patterns matters because they cost real money. An investor who sells at market bottoms misses the recovery. Someone frozen by anchoring bias holds dead weight. Herd followers buy high and sell low.
The antidote involves having a written investment plan before crises hit. This removes emotion from the decision-making process. Dollar-cost averaging into positions during downturns