Do Not Let the Rollercoaster Distract You
In the equity markets, it is no surprise that we have started this year on a “sour note”. The US markets have come down in valuation basically from the get go. The most important thing to realize is that the markets are DESTINED to do these kinds of moves overtime, especially when the market has been on such an upward trend since the COVID bottom in March of 2020. Don’t let the emotions of the move dictate your investment decisions. If you are not in need of the capital now, realizing that the money is for you & loved ones in the future is extremely impactful.
Don’t get me wrong, these kinds of moves should not go unnoticed. But you should always put them into perspective. Some of the worst times to let your emotions take control are when you can seemingly smell the emotion. Per CNBC, the retail investor as of late January was MORE pessimistic than they were during the crash in 2020. Some might think this is a bad sign, but the contrary seems to be true in the past. When people are pessimistic as a whole, there is usually more opportunities for the intelligent investor. This is because you are buying the same company as before, but now it’s less expensive.
When you go to Walmart, do you consider purchasing an item or more of it (buy 1 get 1 free) because it is on sale? I would say many of us do. Now when it comes to investing, people tend to get nervous or downright fearful when they see that investments are down. I know it is hard, but it is important to view it in a similar way as buying dishwasher soap on sale at a retailer. Same product with a lower price.
For a simple example lets consider “buying ABC company”. Let’s say they were worth $100 million a month ago when you purchased it, the business over the last year generated $10 million in Earnings (10x p/e). Now let’s say they are worth $75 million as of today. The business is still chugging along with similar earnings, but the market as a whole brought down the valuation $25 million. Is this business worth selling because it is down? I would say no if you had a reason for wanting to purchase ABC @ $100 million. It could even be worth looking into the company further.
Now do not take this and run with it. Although good companies come down in rough markets, so do the bad. This is why I always say it is so important to at least know the basics of what you own. It is not the best thing to just buy something because it is down. Know that if you are a buyer, there is someone who is a seller on the back end. It is your job to try to identify the “why” for the other side of your opinion. Nonetheless, you should also not let the short-term fluctuations convince you that what you own is a poor investment. Sometimes, the trend works against you but this doesn’t mean that you are wrong. The market is a voting machine in the short-term, but a weighing machine in the long-term. I prefer using the weighing machine for my investments.
Whatever your investment philosophy is, you should still not let the emotions dictate your decision. After all, invested dollars should not be for spending today. Also, missing the largest up days can destroy more wealth overtime than you think. And when do you think the largest moves up occur? You would be incorrect if you thought it was during optimistic times. It usually occurs when clarity is found or the news is not as bad as expected when the market is PESSIMISTIC. Where are we at today? I would say that I can smell the pessimism.
Be careful out there, and make sure you stick to your long-term plan. Don’t let the fear take control today. I would say if you are nervous though, let the market find its footing first then take a second look at what keeps you up at night. No need to join the others who are fearful, let your logic dictate the decision in due time.
Riley Sisson
Branch Manager, RJFS
Any opinions are those of Riley Sisson and not necessarily those of Raymond James.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.
Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investments mentioned may not be suitable for all investors.
There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
This is not a recommendation to purchase or sell the stocks of the companies pictured/mentioned.
Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Investors should consider the investment objectives, risks, charges and expenses of an exchange traded product carefully before investing. The prospectus contains this and other information and should be read carefully before investing. The prospectus is available from your investment professional.
