What we haven’t learned since the crash of ’97

On October 19, 1987, one of the saddest episodes for investors began, the so-called “stock market crash” in which the value of shares fell by up to 70 percent. At that time, the Mexican Stock Exchange was going through a period of accelerated and exceptional growth, which aroused the appetite of many Mexicans to invest in the Stock Market.

The fever to earn attractive amounts of money and even double what was invested led many people to place all their assets in the stock market without thinking about the risks. The expert Joan Lanzagorta details that “there were people who mortgaged their houses to invest that money in the Stock Market, hoping to multiply it. They put their children’s school fees there because as everything went up, it was easy to get income in a few days.

However, when the Stock Market fell, the panic over the loss was resounding, causing fear among investors who sold their shares at the worst time; a year later, the markets had recovered, but those who had divested at that time received the loss of their assets and various financial problems.

After 35 years of the stock market crash, experts assure that many investors continue to replicate the same mistakes of that moment, since there are key factors that have not been learned when investing.

One of the most common mistakes that investors make is to get carried away by the euphoria of investments, according to GBM many people decide to invest when the markets are rising in the hope of obtaining high returns, however due to the lack of financial education make decisions that can lead to the loss of their money.

“Some investors with less experience believe that they can make easy and fast money, for example after the pandemic in the midst of the recovery of the markets, a slight rise began, which led some people to start investing, they bought shares of companies they knew and they made quick money. This happens frequently, when the Stock Market or any instrument goes up, people want to invest, however when the drop comes there is a nervousness and they end up doing the opposite of what is recommended”, commented Andrés Maza director of investments at GBM.

Some of the ideas that prevail among investors is to assume that there is a good or bad time; Maza explained that many investors focus on the idea of ​​entering or leaving the market at the right time to generate constant returns, a scenario that, according to the expert, is difficult to predict even for financial advisors.

“A common question is whether it is a good time to invest; It is always a good time, the market is going to have ups and downs, an example is the New York Stock Exchange, –the New York Stock Exchange (NYSE, for its acronym in English)– during the last 50 years it has had a growth of 12 %, with years of financial crises and sharp falls. Today the stock market crash can be seen as an opportunity, however it is important to create a diversified portfolio based on our risk aversion and financial goals”, commented José Alfredo Álvarez, finance and investment specialist at Flink.

Álvarez explained that some users when starting to invest do not consider the risk associated with the yields and the time they want to keep their money in the instruments, which could not only generate the loss of capital but also the exposure of their data, since they can fall for fraudulent investments.

The key to investing

The experts commented that, although it is not bad to be motivated by a good market moment, it is important that investors know factors such as their level of risk aversion, as well as the functioning of the instruments in which they plan to invest, these factors In conjunction with the diversification of investments and instruments designed for the short, medium and long term, they will allow decisions to be made based on a strategy.

“The most important thing before thinking about the rises or falls of the market is to know ourselves as investors, to know how the instruments work, when investors understand this they know that the corrections will be momentary and that a recovery will come later”, he commented.

joselyn.ugarte@eleconomista.mx