After weeks and months of an upward climb, the stock market did something that took many new investors by surprise. The market declined by about 5%. The impact on some specific set of stocks was a bit more drastic. According to CNBC, 52 of 65 companies in the S&P 500 tech sector were down by at least 10 percent compared to their highest price in the last year or so. How you reacted to the market's decline says a lot about who you are as an investor. Don't let this opportunity go to waste.
On today's edition of Stock Card Weekly, let's dig deep into three possible reactions you might have had. Of the three possible reactions, which one is you?
If this Stock Card Weekly is the first time you hear about the stock market decline, chances are that you fall in the Blissful category. Let me tune it a bit down because unless you live under the rock, there is no way you've missed the financial media, Twitter, Facebook, LinkedIn and other social media's trumpet of doom. Even if you knew about it, if you didn't open your brokerage account or the application where you monitor your investments to see what's going on or read at least 2-3 articles from sources you trust to understand what's going on, you are definitely a blissful investor.
What to do now? Being blissful is not necessarily a bad thing. What to do next depends on your current investment status. If you are already an investor and you have a recurring or an ongoing process for investing, and when you heard about the stock market's decline, you shrugged the news off and said to yourself, "Meh, who cares, I'm in it for the long-term, my automatic investment will go through as scheduled. Let's move on!", you are a good kind of a blissful investor. Congrats! May you prosper in your blissful ways of living!
On the other hand, if you shrugged it off because you don't have the habit of keeping yourself informed and you don't have a natural curiosity to learn as an investor, you are most likely missing a lot. Your kind of blissfulness may help you slide through life like the Buddha, but don't expect to generate wealth, or retire early, or have money required to fund a side-hustle. If any of those things are among your goals, you are not on the right track! Start learning about how to invest for the long-term.
Did you log in to your brokerage account or the application where you monitor your investments at least once a day? Did you read several articles, jumping between articles on Seeking Alpha, Bloomberg, CNBC, etc. like a headless chicken? Did you ask yourself "should I sell?" 10 times every hour? Did you cuss the Gods and the lady luck for ruining your plans for buying a vacation house? Did you ... you get my drift. You are a Maniac. And, I don't mean it in a good way! Look, historically speaking, on average, the stock market goes down 5% or more three times a year (Source). You either don't understand how the stock market works or you invested the money you need for your day-to-day life, and that makes you vulnerable to the natural behavior of the stock market. It goes down, and when it goes down, it always goes down faster than when it goes up. You probably already knew that there is a chance for your investments to go down, but you don't know how to control your emotions.
What to do now? Study the history of the stock market. Being a maniac, or being a semi-maniac is not a good indicator. Use this opportunity to learn about yourself. Understand what causes you to lose your sanity, and start working on it. This is a priceless learning opportunity for you to learn how the stock market works and to what extent you are in control of your emotions. Stock market investing is 10% about the numbers and 90% about having the emotional stability to listen to what the numbers tell you.
Oh well, hello to our intelligent investors. Let me guess what you did in the past few days. You saw the news of the market decline through whatever routine you have to keep yourself informed about the world. Most likely you didn't do anything on the first day, beyond reading a few articles from the authors or sources you trust to understand what this is all about. Once you realized the downward trend is meaningful enough that some very well-managed companies are getting closer to becoming undervalued, you took the watchlist out; the watchlist you keep on the side to go bargain shopping whenever the stock market does what it naturally should do, going down every now and then. You used the cash you have on the side for such occasions and hit "Buy" a few times, not too many, because the decline is only about 5% or so. That's it, and you moved on with your life. If that's you, congratulations!
What to do now? Nothing! Blaze on! And, thank you for being a Stock Card member! Keep looking up the Stock Card of the companies you are interested in, and discover new ideas through Stock Card portfolios.
Before I let you go, let me leave you with a few facts and information about the stock market that I remind myself everytime I hear about yet another stock market doom and gloom. This is a research done by Morgan Housel, a partner at Collaborative Fund and an ex-analyst at The Motley Fool. Learning from the stock market history since 1915, on average the stock market behaved this way:
Understanding these numbers, at least, should give you an informed peace of mind that long-term investing works, regardless of what happens in the short-term. There is also another way of looking at these numbers, but not many have the emotional intelligence to read these numbers that way: There are only a handful of times in your life that you can go real bargain-shopping in the stock market. Don't let it go to waste!
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