Mark Dampier: Headlines scream panic but don't start ripping up your investments

The week preceding the bank holiday proved to be one of the most volatile for some time. ''Black Monday'' was the 10th consecutive day the FTSE 100 ended in negative territory – the longest losing streak since January 2003.

Over the 10-day period, the index lost more than 10 per cent of its value. But just three days later these losses had been recovered, and on Thursday 27 August there was a gain of 3.7 per cent – one of the top 50 days of FTSE 100 performance since its inception in 1984.

This volatility could well continue until the US Federal Reserve interest rate meeting on 17 September. Slowing growth in China and other emerging markets, along with falling commodity prices, has been keeping a lid on global inflation – which could give the US central bank cause to maintain low interest rates a little longer. However, should rates rise, expect a strong market reaction.

It was interesting to witness how the media and commentators reacted to the volatility in global equities. There is no doubt that doom and gloom sells, and we have seen some spectacularly dramatic headlines. Forecasts of all types of hell – down to bunkers, baked beans and shotguns – are always guaranteed reads.

As I write this, I realise I could be accused of hypocrisy. However, I would like to think I take a more considered, calmer approach.

I have always been a keen advocate of reading as much information around a subject as possible before making any decisions. I believe almost anyone – from individuals setting out to make their first investments, through to experienced investors with large portfolios – can gain a lot from reading the personal finance sections of quality newspapers. There are a number of journalists who write excellent columns that can enhance a reader's knowledge and aid in making investment decisions.

Yet, when the proverbial hits the fan, we can often be assured that the more sensationalist headlines will take the front page. It is at this stage I fear for the private investor.

Faced with column after column of negative news, pictures of traders with looks of horror on their faces, and headlines screaming the end of the world, it is not surprising a feeling of panic soon takes hold.

My advice at this point is to stop. Switch off the screens, stop checking your portfolio and, if you have a hobby or a sport, go and do it. Constant tweaking of your investments and making decisions that are more likely based on emotion rather than facts is a recipe for disaster.

This is undoubtedly an uncomfortable time, but there are a few points to remember that should ease the worry. First, the biggest falls are often shortly followed by the biggest rises. Selling while the market is declining means you are likely to miss any later upturn.

Even if the market suffers a prolonged fall as it did in 2008, many investors are better served by riding it out. The best fund managers lost money through this period. However, they rebounded even stronger than the market through the subsequent rally and three years later many funds were considerably higher than their pre-2008 level.

Masterly inactivity may sound foolish when the rest of the world is shouting 'Buy!', 'Sell!' – but I assure you, dear reader, it is not. I am confident more money is lost anticipating the next collapse in the stock market than will ever be made during the good times.

Peter Lynch, a top investor and previous manager of the Fidelity Magellan fund, made around 29 per cent per annum over his tenure. However, he once said he thought that most of his investors only made around 3 per cent.

By attempting to time the market, those investors swapped very good returns for the mediocre.

So stay calm, stay invested and use any cash outside your rainy-day fund to top up on any short-term weakness.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds in this column, visit www.hl.co.uk