The last few weeks have been very hard for the portfolio. Each time I look at it (and at the moment that is more common than I really wanted to know), I'm a bit confused. And in September (completely ignorantly and accidentally) I sold some positions and did not reinvest. I would really appreciate it, right? But not really.
Market corrections are not pleasant. Of course, investors always tell us, "I'm glad if prices fall, then I can buy it cheaper!" But believe me: the melting of your portfolio is certainly not fun.
What to do if the market stops? I think of three things spontaneously:
1. Calm down
An investor teaser saying stocks are on the stairs but on the elevator.
There is even a better quote from David Gardner, co-founder of The Motley Fool: "Stocks fall faster than they rise, but they rise as they fall."
This means that average bull markets are much longer and are more consistent than bear markets, which are mostly short and cruel. But – and that's good news – stock markets are rising more than they fall. For example, in the long run investors are expected to earn 9-10% per annum on the S & P 500 index.
So there is no reason for panic. Market corrections are fairly normal, even when it hurts. The worst thing you can do at such a moment is to make emotional decisions.
Take a deep breath, sit back and consider the following:
If you are a fool investor, you have two great benefits. First, you invested only the money you do not need in the next five to seven years. This means you have enough time to replenish your lost money on paper. Secondly, you know that in the history of the stock market there is only one way in the long run: up.
2. Focus on the business
There are three important advantages for the Fools: in principle, we invest in companies that are thoroughly analyzed instead of the stock we distribute in the form of lotteries.
The analysis is not just a buying decision, but a continuous process. As a result, we are getting better and better acquainted with our companies, which we can profit especially from the market crash. Ideally, we can distinguish in such situations what is relevant and what is just "noise".
This does not mean closing your eyes to changing circumstances. But if the whole market is provided and there is no company-specific news, we can assume that there has been no fundamental change in the company.
Usually, the companies we invest in are the same before and after the same market downturn. The only thing that changes how marketers perceive the value of companies – it's just a psychological phenomenon that we can ignore as a long-term investor.
3. Seize the Opportunities
Can anything else be done as an investor, except for the tranquility and continue along the way? It sounds a bit passive, right? I think most investors are doing well now with the two steps – in the end, it is often not the most difficult discipline to invest.
However, I do not want to deny that the market downturn offers some opportunities. For example, you might want to consider adding a new position on the checklist, but you have not been willing to pack it.
What I want to do in the correction is to fill my long-term winnings. The advantage of this is that I usually know the company well and thus appreciate the value of the stock and whether it is actually a purchase option. However, I always keep in mind that the position does not take too high a percentage in my portfolio.
Another way to use market corrections is "losing taxpayers' income" – a slightly translate German translation Harvesting with pay slipsThis will be possible if you have gained capital gain on one side of this year (eg through equity or realized exchange gains) and on the other hand, there are positions in the portfolio that are currently in a negative area.
In that case, he could sell his unprofitable shares so that capital loss is reimbursed by his investment income and the withholding tax already paid is refunded. In the next step, you can buy shares again, but you also have to be cautious because there are rules in some countries that prohibit loss-making if the sale and repurchase of the same shares is too short. Alternatively, you can simply buy another share with the available money.
The sudden drop in prices is a normal part of the investment and can not be too uncertain as an investor. Keep in mind that this is the worst time for your emotions. As a long-term investor, time factor plays into your cards and you do not have to prove yourself why it has dropped a bit. Take advantage of this opportunity that will surely envy professional investors!