Time to Panic?
Ok, it’s time to address the elephant in the room.
The biggest thing on people’s minds at the moment — investor or not — is the growing threat of the coronavirus. At the time of writing, more than 80,000 people worldwide are reported to have been infected and approximately 2,700 people have died. There have been reported cases on every continent except Antarctica at this stage, though Asia and China specifically remain the hardest hit.
Outside of the human impacts of this outbreak, there have been big effects on the market too. Companies like Tesla, Starbucks, and Apple have been issuing lower guidance since late January off the back of expected drops in production and sales related to the virus. Just this week, another massive company — Mastercard — warned that its first-quarter revenue growth would be lower due to the outbreak.
And, of course, the overall market has had a stinker of a week so far. The Dow Jones has fallen more than 2,200 points over the past four days, while the S&P 500 was down more than 5% from market open Monday to close of business yesterday.
So is it time to panic?
Well, as my colleague Rory noted on a recent episode of the Stock Club podcast, there are no microbiologists working here at MyWallSt, so we can’t comment on the spread of the coronavirus.
We are investors though, so we are well placed to comment on the volatility the market is experiencing at the minute. However, instead of just repeating the usual spiel we save for turbulent periods like this, I’ve decided to directly answer three of the questions we’ve received from the MyWallSt community over the past few days:
“I want to confirm that it is MyWallSt's recommendation that, once you've purchased stocks, you should keep them — even during such a dramatic loss as the past few days have been?”
Every ‘Our Opinion’ section in the MyWallSt shortlist is written about the specific company in question. It covers things like revenue growth, competitive moats, operating margins, retention, and management.
Don’t forget that the companies in your portfolio that might be in the red today are still the exact same companies they were this time last week. What we are experiencing right now is a widespread market rout that’s affecting almost every company listed on the market, regardless of size or industry. It does not change the fundamentals of individual companies.
In fact, many savvy investors might actually use this pullback as a chance to open or build upon positions in companies they like while their stock is at a discount. As Warren Buffett once famously said about his own approach, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
“If we keep the stocks in our portfolio — no matter the loss — will our total gains beat the strategy of taking profits before expected losses and buying again once the stocks have begun to come back?”
This is a question we actually encounter quite a lot and on paper, it makes perfect sense. Hold on to your stocks until the market peaks, sell them all, and then use the profits to reinvest in the companies for a larger stake. Simple right?
Unfortunately, this strategy is almost impossible to practice in reality. Who can tell when the market is at its peak? One year ago, many news outlets were saying that this current bull run had reached its end. Five years ago, they were saying the same thing.
Even more difficult is pinpointing when the market has reached its bottom. These are things that are only easy to spot with the benefit of hindsight.
Dollar-cost averaging, or investing a set amount of money at regular intervals, isn’t just popular because it’s easy to do — it actually works. It removes the irrational and emotional influences from your investing strategy, which are often the things that trip even the best investors up, and allows the effects of compounding to take hold after a while.
“Markets are taking a beating at the minute, any advice?”
This one is simple and straight to the point, so I’ll keep my answer the same.
At times like this, I think the most important piece of advice I can give investors is to remember MyWallSt’s Six Golden Rules:
Never borrow to buy.
Buy what you believe in.
Invest what you can, when you can.
If you can apply all of these rules to your investing life consistently, you’ll be granted the privilege of not having to lose too much sleep over turbulent times like this.
If you’re looking for some more on this, I’d encourage you to read this blog written recently about the perils of panic-selling — 5 Reasons Why You Should Not Panic Sell