Suppose you are a stockbroker, who has just sold a new client 500 shares of a stock your brokerage recommends. The very next day after the sale, the price of the stock drops $3. The client calls you as soon as hes looked in The Wall Street Journal. Hes obviously upset that he lost $1,500 in only one day. Although you assure him that your researchers rate the stock highly and that the stock market as a whole had a low day yesterday, the client still threatens to sell his shares and take his business elsewhere.

Why would a good stock drop $3 in one day?

What do you tell your client if the market drops again tomorrow and his stock drops with it? Are some people emotionally unsuited to handle the stresses of the ups and downs of the stock market?

Should such people stay out of the stock market? If so, what are their investment alternatives?