Market Volatility And The Business

We’re familiar with the term “roller coaster market”. It hurts to see your profits drop but during these times, it’s even more important to stick to your strategy. Selling out after a huge drop to protect what you have left may seem sensible at the time, but the truth is, you are just throwing your wealth down the drain. How are you handling your roller coaster?

The Roller Coaster

Everyone views the current market differently.
Those who hate volatility probably got on a roller coaster they couldn’t handle and are hanging on for dear life.

Others may have thought they could handle risk, but now they realise how little risk they can really handle. They overestimated themselves.

Some people may have already experienced this type of situation before and by looking at hindsight, they are managing to hang on and know that there will be an end.

A small percentage of people acknowledge that they have no insight, foresight, backsight, outsight, eyesight or any other sight regarding the market. This small percentage instead dive in knowing that a rough ride is ahead yet know that the outcome brings thrills, exhilation, reward and satisfaction if handled properly. In other words, these are people who continue buying in a bear market even as they see their positions drop.

Market Timing Thoughts

No one can time the market. The individual investor is especially at a disadvantage when it comes to timing because the market is “supposed” to know everything. The big players have access to more information, they have better tools, they have real time data. They have the advantage over you in terms of “timing”. So why bother playing a game where you know you are at a disadvantage?

If you plan to sell before a recession becomes official and jump back in a few days after the recession has ended, you are probably already too late. This way of thinking will just make you sell low and buy high.

And This Too Shall Pass

Let me try and broaden the philosophy of investing.

And this too shall pass

Simple, concise, clear and effective. If we were to heed this advice more often, it is possible that our investing habits may be different.

When we are buying “darling” stocks at ridiculous prices because we “feel” that they will reach the sky… “this too shall pass”.

When we become overconfident in our decisions and analysis… “this too shall pass”.

When we feel the economy will sink into a recession… “this too shall pass”.

When we fear the market will cave in… “this too shall pass”.

The Company Value Hasn’t Changed
No matter how much the market marks down the price of our investment, the underlying fundamentals and intrinsic value has not changed. (edit: in a difficult economy, margins would be lower and so intrinsic value would change. Fundamentals remain the same.)

Price is just an indicator.

Price is what you pay. Value is what you get – Warren Buffett

If Mr Market or your friend wants to sell you his $1 for 50c, would you shiver with fear and reject the deal because you are afraid that $1 can drop to 25c? Why not buy it at 50c and buy even more at 25c?

Even during a bear market, the underlying value of $1 has not changed. This goes the same for great companies.

Don’t Forget Your “Jewels”

One thing this correction will reveal however, are your bad investments.

Only when the tide goes out do you discover who’s been swimming naked – Warren Buffett

No matter what type of roller coaster you are on, think back to why you chose them in the first place. If you have no basis, then Mr Market will catch you with your pants down. If they are solid reasons, your jewels are safe.

Just try not to be overwhelmed with market volatility. Looking ahead in the distance while riding a bike is much easier to handle than looking at your feet and seeing the ground whizzing past.

Slow down, take a breath and revisit your investment decisions if you have any desire to sell.

Ready to try Old School Value?