No one knows when stocks (or the stock market) will bottom. One can speculate—and every analyst hoping to be famous on TV certainly speculates—but no one knows, no matter how many predictions they claim to have been correct in the past, when a stock or market falls so low. go.
And, while it’s tempting as an investor to wait for better prices, it’s a dangerous game. Yes, you might get a better price by waiting, but you might also find yourself waiting too long and missing out.
depressed market, bear market, market crashes – whatever you call them, there are no rules. A market correction will drag over-hyped, under-delivered companies down the stocks of strong, well-performing companies.
As a long-term investor, your job (or at least the best way to build wealth) is not knowing where the bottom is. Instead, it separates companies that have a bright long-term future (where today’s prices hardly matter) from those that have seen their stock prices drop because they don’t have a sound business fundamentals.
This is not always easy to identify when you consider some examples:
Some investors and analysts have two views on any of the above issues. But the best thing about investing is that you only need to invest your money in stocks that you have a firm belief in.
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What is a long-term investor?
Long-term investors see the sluggish market as an opportunity to add to their portfolios. Before you even consider doing so, you must consider what it means to be a long-term investor.
Long-term investors buy shares in companies they intend to hold for years — essentially forever. Often, long-term investors have an investment thesis — it’s why they want to own the stock. Even if the company’s stock price falls, the paper should give long-term investors confidence in the stock.
Basically, long-term investors check their holdings to make sure the company hasn’t made changes that would cause it to go off topic. For example, has the CEO changed, has the new leader made significant changes to the way the company is run? Or, did something significant happen in the market that caused you to change your outlook on the company’s prospects.
Long-term investors understand that many companies — Amazon is the most famous example — don’t manage to deliver quarterly results, and instead, their leaders make the best decisions for the company to succeed in decades rather than quarters. That’s why Amazon (sticking to the example) has been willing to invest in the infrastructure needed for long-term success in loss-making quarters.
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Such a move could lead to a drop in the company’s stock price, but it’s hard to argue that Amazon (and many other market-leading companies) are wrong to view their business as a long-term enterprise, rather than issuing quarterly press releases.
How do you get rich in a bear market?
Bad markets, bear markets, and stock market crashes have sold off good companies. If you have a company that you believe in (and probably already own), then even if the bear market continues and the stock falls, you can buy the stock with complete confidence that you are making the right choice for your future.
Long term means years, sometimes decades, when stock prices fall due to market conditions or macroeconomic conditions, you can buy stocks and do what is called dollar cost averagingThere, instead of waiting for the best price, you buy stock as funds allow, averaging out what you would pay to own stock in the company.
A falling market can actually allow you to lower the average cost per share of your best holdings if the stock price falls below the price you originally paid.
The challenge — and a big one — is that long-term investing means you hold the stock for a long time (or a long time). Right now, that might mean a big hit to your portfolio, but if you believe in the companies you own in the long run, it makes sense to hold them and add to those positions.
And, while I’m an advocate for long-term investing, I’m not alone, as legendary investor Warren Buffett has followed the same principles with some resultslove quotes on this topic.
“There are people sitting in the shade today because someone planted a tree a long time ago,” he said.
The Prophet of Omaha also often said two other things to illustrate this idea,
“If you don’t want to own a stock for 10 years, don’t own it for 10 minutes.”
“Our favorite holding period is forever.”
Does long-term investing have to be your only strategy? Of course not, you can also make money by being a more active trader.If you have more advice on long-term investing, check out street smart, a product designed to help you get started and build a long-term mindset.And, if you want a more active approach (or stand alone), managed portfolios are located at TheStreet’s Action Alert Plus Gives you access to world-class portfolio managers Chris Versace and Bob Lang so you can see how they are making money during these dire times.
