Is your Portfolio all Red?
You may be wondering how do I know that your portfolio is a sea of red (losses) no matter what you are investing for a long position (index funds, stocks, commodities). You may also be facing intense stress of worrying that all of your investments will be gone due to this recession. However, you must understand that you are not facing this alone... probably most of the value investor (long term investor on fundamentals) are facing this sea of red with you (Yes, I am one of them and many of my friends are also worrying about their portfolios). So... what next? These are the list of things that I believe are important especially during this period of the market downturn:
1) DO NOT PANIC SELL
I cannot emphasize how important this is. If you panic sells most of your shares, it only meant that you are realizing these losses and are losing the opportunity to own these good companies. As a value investor, I believe that fundamentals are ultimately what you decide when to sell the companies - when it turns bad - instead of due to market prices as most of the good companies will rebound after the recession is over. I present you a quote from Warren Buffet on CNBC on 24 February 2020 which I find especially true. Here is the quote, "Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK-A, BRK-B), says the stock market rout we’re witnessing today is “good for us.” “We’re a net buyer of stocks over time,” he said on CNBC. “Most people are savers, they should want the market to go down. They should want to buy at a lower price.” Buffett’s comments came as Dow futures (YM = F) were down by about 800 points or 3%. Stocks around the world plunged on Monday as the coronavirus outbreak escalated, exacerbating fears that the global economy would seize up. Regarding the coronavirus specifically, Buffett made clear that he is “not a specialist.” And he warned that “a very significant percentage of our businesses one way are affected.” However, he reiterated that investors should be more focused on the long-term, not the short-term. "If you're buying a business, and that's what stocks are... you're gonna own it for 10 or 20 years,” he said. “The real question is: ‘Has the 10-year or 20-year outlook for American businesses changed in the last 24 hours or 48 hours?’" To add on, panic selling is historically been a bad move as you are actually "Selling low, and Buying high" which is totally irrational.
2) ANYTHING CAN HAPPEN TO THE MARKET TOMORROW
I believe that this is especially true. The market is especially volatile recently, with the spike of highs and lows within days. I find it as an opportunity to train our mental state as an investor - stick to your rules and believe in yourself and due diligence.
3) SELL OFFS ARE OPPORTUNITIES
"Buy low, sell high". Most of the investors are either panic selling or greedily shorting. This presents us with plenty of opportunities to buy companies at a bargain purchase. This is quite rare as you only sell market recession every once a decade. Historically, the market will tend to rebound back when the recession is over and that is when you reap all the profits and reward yourself for your patience and hard work - resisting the tendency to follow the herds of panic sellers.