It is one of the defining traits of humanity that we are just not very good at sitting around and doing nothing. Of course, there are plenty of exceptions to this, particularly myself, when I find a new show on Netflix (NASDAQ: NFLX) or Amazon Prime (NASDAQ: AMZN) to binge-watch.
It is this compulsion to act that can lead to a lot of problems, especially in the world of investing. Many different investment 'gurus' over the years have spouted figures such as "90% of all investors lose money", but it is near impossible to quantify this. It is, however, very easy to invest in a smart way, and sometimes buying or selling stock at the wrong time can be detrimental to this.
That's why it is so important to know when to do nothing with your investment.
Investing is hard sometimes.
Tesla (NASDAQ: TSLA) investors were rudely reminded of this early in 2020 when short-sellers lost billions betting against Elon Musk's electric car giant. The stock soared, reaching nearly $1,000 per share until the coronavirus hit, and shares fell tumbling back down to earth again. The naysayers lost money in January, while the superfans lost out in February.
But what about the investors who did nothing?
When Tesla was sitting at close to $200 per share between September and October 2019, many investors jumped in. The next 3 months, before the coronavirus, proved to be quite bountiful. While many will have bought more Tesla stock, those who kept their initial investment from September will have gained the most, with close to four-fold returns as of the time of writing this.
Of course, that is just one example in millions, and there is absolutely no way anybody can predict a coronavirus pandemic. What people could predict (reasonably) though, was that Richard Branson's Virgin Galactic (NYSE: SPCE) would have little to show for its second-ever quarterly earnings report in February 2020. People became caught up in the moment and the wonders of space travel, ignoring the fact that the company was burning money as fast as its rockets burned fuel. It's a speculative stock at best, and when people bought it during its December 2019 lows, they should have quit while they were ahead.
But hindsight is a wonderful thing.
Timing can be the hardest part of investing. The scars left from the Tech Bubble and Great Recession are all too recent, so it's understandable that people want to take the easy way out and just sell during times of uncertainty.
To put it into context, there have been more than 600 months of growth over the past 60 years, compared to a little over 100 months of contraction. Even with downturns, the economy always recovers and the overall trend of the U.S. economy has been upward, despite its cyclical nature.
Another important thing to remember is that volatility is inevitable and perfectly normal. Take the coronavirus, for example. If it wasn't this that caused a widespread market sell-off, it would have been something else. We are experiencing the longest bull market in history: it has to end eventually.
If you have diversified your portfolio enough, and feel like you have a healthy balance of stocks, then during times of uncertainty, the best thing to do could be nothing. Many people might feel a downturn could represent a unique buying opportunity for expensive stocks, but FOMO (fear of missing out) is one of the deadliest reactions an investor can have. Just sit on a portfolio and ride out the storm. In the long run, the market always trends upwards.
There is no easy answer to this question, and if there was, then we would all be sipping mojitos at our beach houses in the Bahamas. In reality, there is no discernable way of predicting the market, unless you are insider trading, which is, in fact, illegal.
You might have heard about the famous insider trading case of The Precognition Rat Pack: Michael Milken, Dennis Levine, Martin Siegel, and Ivan Boesky. These 4 were investigated after hitting home runs on a number of lucrative deals during the 1980s, including Getty Oil, Nabisco, Gulf Oil, Chevron (NYSE: CVX), and Texaco. The total charges came to 98, worth 520 years in prison collectively.
Anyway, let's get back on track. Here at MyWallSt, we believe in the tried and proven method of 'buy and hold', which doesn't leave a lot of room for selling. Our six golden rules are:
1. Get started: No matter how big or small the investment.
2. Think long-term: The buy and hold philosophy will outperform the market in the long-term.
3. Never borrow to buy: Save first, then invest.
4. Diversify: Accumulate a minimum of 12 stocks across 6 different sectors.
5. Buy what you believe: Own part of a business you love.
6. Invest What You Can, When You Can: Get your saving habits right.
But, we understand that not every stock is a winner, and sometimes you need to cull the herd in order to save it.
Again, there is no right or wrong time. Before investing in a company, it's important to know what you want to get out of it, and what gains you expect to make. When doing this, you can also set a risk tolerance for yourself for when you are willing to call it quits.
Another factor may be that the reason you bought into a company has changed, and you no longer agree with or believe in the company's long-term strategy. If this is the case, then often it is a sign that you should look elsewhere.
Whether you are a bull or a bear or on the fence, one of the most important things an investor can do is trust their gut instincts. Not every investment will be a winner, and any good investor will have losers along the way. Even the Oracle of Omaha himself, Warren Buffett, has made mistakes, most notably Kraft Heinz (NASDAQ: KHC).
You don't need to invest in winners all the time, you just need to invest smart, and the winners will come. That is what MyWallSt is here for, to get the world investing.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
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