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Should you sell all your shares because of falling markets?

The FTSE 100 tripped up last week, but to put things in perspective, it’s still above the level it reached in mid-December 2019.

There’s almost always something to worry about if you listen to the news, but historically the stock market tends to creep up over time, climbing that wall of worry that many people like to mention.

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A mixed picture

Former hedge fund manager Jim Cramer is now an American television personality hosting CNBC’s Mad Money. He said last week he thinks the markets could sell off more from where they are now because of the current flow of immediate news from China. But we need to balance that against “corporate earnings coming in strong this quarter.”

Stepping back and looking at the overall picture, Cramer pointed out that stocks are “signalling prosperity,” but the bond market could be “pointing to a recession.” The interest rate on US 10-year Treasury bonds has fallen to 1.59%, he explained. And seasoned investors know to always pay attention to bonds.” 

Cramer also thinks commodities are flagging the risk of a recession and he recommends steering clear of oil and oil-related stocks for the time being. Indeed, in the London market, shares such as Pharos Energy and Tullow Oil have been declining for some considerable time.

China is the second-largest economy in the world, behind only the USA. A big slowdown in China could export recession to the rest of the world, Cramer reckons. And I think that assessment has been hanging over the heads of investors for at least a decade. China has been a source of both optimism and worry for almost as long as I can remember.

Hold your nerve

So, what should we do, sell up our shares and hunker down to wait it all out? I wouldn’t. The problem with that approach is that we will likely miss the big rallies in shares when they come. And rallies tend to arrive when you least expect them.

There’s an old share trading adage that suggests it’s best to ignore news flow anyway because it’s usually behind the curve. By the time we start focusing on general macroeconomic events, the stock market has usually already factored them into prices because stock prices tend to be forward-looking.

Right now, the general economic outlook appears to be a little murky, but that could be one of the best times to look for shares and share-backed investments. Super-investor Warren Buffett gets greedy with stocks when others are fearful because he knows that an uncertain outlook tends to push share prices down. And he likes to buy the shares of good quality businesses when they’ve been marked down and the valuation is more attractive than it was before.

One way of dealing with wobbly markets and an uncertain macroeconomic outlook is to focus just on the news coming from the companies behind the shares you own. I’m not in a hurry to sell any of my holdings and will more likely be a buyer of shares if the stock market dips further from where it is now.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.