Leading off
We have been experiencing an unprecedented bull market over the past decade. Following the housing collapse in 2007-2008, the economy has continued to prosper throughout the years. During this historic run, we have seen companies like Facebook IPO at $38 per share and grow into a strong stock, currently valued at over $182 per share. On August 1, 2008 Amazon stock was priced at $75.75 per share, now flash forward to August 2019 and Amazon stock prices are above $1,800 per share! Insane growth numbers from a few key players in the tech space have helped boost the US and global economy more than tenfold during this run. Unfortunately, growth slows and economies have pullbacks.
The bears are coming
Nothing lasts forever. Although it would be fantastic to continue growing at these rapid rates, it is not possible to continue on forever without any pullbacks. Companies run into problems, sometimes very expensive solutions or no solution at all. Companies experience leadership turnover and increased competition over the course of the business lifespan which comes with costs. The U.S. economy naturally peaks and troughs over time, directly effecting the stock markets we invest in. If you look at the short term, 1 month or 1 year, the market looks slow and stagnant without any hope for a return on your investment. This might scare beginners from getting involved with investing. However, if you zoom out and look at the 5-10+ year span, the stock market continues to grow and brings good opportunities to invest.
Embrace the pull-back
Do not sell out your positions when the market starts to dip, that is not going to benefit your portfolio. I hear people saying they will sell their position, then buy back into their stocks when things turn around. Trying to time the market is dangerous and borderline gambling with your money with very little control over the outcome.
A pull-back is inevitable. Our economy cannot continue growing at such rapid rates without a correction. When we experience a correction, it is a great time to buy quality companies with good valuations to add to your portfolio. Taking a wider scope and looking at the long-term timeline of the market will show you how well the economy has performed over the years. Zooming out beyond the 1 year scope for the Dow Jones will show consistent growth with a few corrections along the way.
Feed the bears, run with the bulls
Instead of trying to time the market and sell before the pullback happens, you are better off staying patient and withstand the red numbers in your portfolio. Continuing to buy shares of well-run companies during a dip will enable you to gain a stronger position on your holdings, getting better valuations with more upside when the market starts to turn back around.
Some people like to wait it out, hoping the market will stabilize before buying. The problem with that is that it is unpredictable. There is no way to know when the market will bottom out to indicate a good time to buy. Averaging down and buying in small increments as stock prices drop is a good strategy to continue securing stocks at good valuations. Averaging down seems like a drag when you see stocks continue to plummet during a bear market. You buy stocks and see the values continue to drop. It feels like you’re on a never-ending slide without a support level in sight.
Withstanding the pressure
Seeing red numbers everyday builds up on you as you see your investments going in the wrong direction. When you see stock prices dip, you naturally want to sell and get out to abandon ship. The successful investors are patient, sit tight and continue buying as the sellers start to open the floodgates for good opportunities. If you can withstand the pressure to sell and continue buying during tough times, you will see the light at the end of the tunnel….Eventually.
When the tide does turn and the economy begins to pick itself back up, investors who withstood the pressure and continued to expand their positions will reap the benefits the most. Although it is gut-wrenching to see your portfolio losing market value as you expand your positions, buying more shares when the market is down is a powerful way to maximize the value of the dollars you put into your investment portfolio.
Please do not interpret any of this content as direct recommendations or investment advice about how to trade stocks. Feel free to reach out to get put into contact with a Certified Financial Planner to learn more about investing and how to get started.
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