There’s a “sell first, ask questions later” mentality that has roiled the market in recent months. It’s actually been around even longer than that, but this is as awful a time as any since the market was in the midst of a serious crash.
Yes, the market got oversold, but the one thing you don’t want to do is sell good companies just because the market is getting hammered. That is ultimately a terrible mistake, and it’s one I don’t want to see anyone doing.
When it’s all said and done and investors have taken part in the panic selling and run for the hills, they will regret their actions, although few will ever acknowledge them. I talk to a lot of people that act like selling their holdings in great companies was okay because of the turmoil, but they never admit — or maybe they simply can’t see — how their actions actually helped create a lot of that turmoil.
In the 1960s, investors held stocks eight years on average. These days, it’s less than eight months. And let me tell you, there is no way that the fundamentals of each stock in the market change that dramatically in such a short length of time. Much of the selling is based on emotion, and that’s where investors make their mistakes.
Don’t Let the Market Chase You From Your Winners
I get that it’s hard to hold stocks that are losers on paper, but if you picked stocks that are winners in the real world, it helps you keep your head. Ironically, the advent of financial media, particularly television, has made the situation worse. With an ambulance-chasing mentality and an understanding that bad news and fear draw more eyeballs to websites, the slightest miscues are magnified.
Investors looking for stocks to go straight up or never be challenged aren’t really investors at all. The fact is that, when great stocks take a hit, it creates great opportunities to buy on the cheap. These stocks only stay down for a short period of time, and investors taking hits because they can’t hold beyond six months or take a double-digit paper loss will regret it at some point in the future.
Emotional selling is one of the worst mistakes investors can make. Extreme volatility may not be fun, but selling is the last thing you want to do if you’re in the right companies to begin with. Part of long-term investing is holding through those ups and downs.
Take a look at one of my Smart Investing recommendations for example. SolarEdge Technologies (SEDG) got beat up late last year. It fell to a 52-week low of $15.02 on November 11, and if I had gotten caught up in the emotions of the pullback, my subscribers would have taken a 62% loss. We would have missed the bounce of more than 70%. We stayed focused on the company’s underlying fundamentals and the reasons I recommended the stock in the first place.
The same thing goes for Wynn Resorts (WYNN). If we had given up at or even near the bottom, we wouldn’t have been able to participate in the 56% rebound.
The market is acting better, and we’re also getting closer to being able to start actively and aggressively buying again. Remember, pullbacks are where we add that oomph to our portfolios that add up big time for retirement. Market gyrations are here to stay, and investing smartly in these times means staying focused on fundamentals and taking advantage of dips to buy great companies at great prices — not liquidating simply because you don’t like the look of the red ink.
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