Volatility has once again struck stock markets across the globe. The doom sayers are again predicting the end of the world, the hopefuls believe the economy and the bull market is intact. We are only facing a correction, a brief, yet prolonged downperiod, they might argue. Amidst all the fog of opinions, you might be asking yourself: “Shall I sell my shares? Are we heading into a bull market? Will it be another 2008? A collapse of financial markets?”
Should you sell your shares or take a contradictory stance and buy at a discount. Well, that is in comparison to the highs we saw only a few months ago. If you are new to investing, it is too easy to let fear take over and push your decision towards the former and sell. There is no question that if you are happy with your gains and feel the time has come to cash out and pocket your capital gains, then, by any means, sell and enjoy your investment successes. If, on the other hand, you are merely fretting over the potential downturn, infected by all the vocal messenger predicting the end of the world, be assured that even if the markets turn downward, as long as you don't sell, these losses mean zilch.
When Lehman Brothers took the world, and in particular, the stock markets across the globe, on its hellish way down, many panicked and sold at a loss. Too scared that their portfolio would lose ever more in value, they acted upon their panic. Never a good strategy. Following the herd is as witty as buying a stock because your colleague or a friend at a party told you about this wonderful opportunity. They may be right, they may be wrong. You won't know until you do your own research and set your own strategy.
For years I was sitting on losses, on paper losses that is. If you have read the article about my investment in France Telecom after moving to France, you will know that for a number of years my position was down – at one point almost 50%. Was it fun to watch a stock position that was worth less for what I had bought it for? Absolutely not, but I wasn't really bothered. For one, I knew that France Telecom was worth at least the price I had paid for it. Secondly, the entire market was bearish. Thirdly, my strategy. I had never intended to make any profit from any share price gains, I was merely after the 8% dividend. That, I was certain, in fact even guaranteed by the company, to be paid for most of the period I held the position in France Telecom. As you know I not only pocketed the 8% return on an annual basis, but also sold the shares at a gain.
The point is that no one know what will happen tomorrow. Truth be told, it appears that for quite some time, it is increasingly harder to predict at 1:30 pm what will happen at closing time. Numerous times you saw the market in the red or way up, only to turn 180 degrees within one hour. Should that affect you? Let it annoy you a little, but then turn your attention back to your initial plans. Don't ponder whether this is the end of the world. It never is. Unless the end of the world is indeed here, a downturn, a correction, and even a bear market is only temporary phenomenon. If your investment, the share and the portfolio that you have bought and build up has its foundations in your own research and conviction, dismiss any worries. A solid company will still be solid even if the market turns red. A solid company with healthy finances, good products and services, new developments in the pipeline is still the same company.
Think of it this way: Would you sell your business for less than what you know that it is worth, only because someone else tells you that they don't want to pay you more than 10, 20, 30, or 50% of its actual value. You certainly wouldn't. You would laugh it off, ignore the silly offer, and get on with running your business. This is no different when the market turns, the most vocal voices shouting their end-of-day predictions into the ether.
If your strategy was to buy a solid company that not only had a great business, but also paid you regular dividends, then why sell it? Particularly in today's low-interest environment, at least in most of Europe. What would you even do with all the money? But that aside, a good company remains a good company, no matter what others offer you for your share(s) in the company.
The way I dealt with the paper losses was: I simply stopped checking the value of my portfolio for a couple of weeks. If it affects you negatively emotionally, then why do it? Would I have sold any of my shares only because the entire market was in a downward trend? No. I only sell shares when I am convinced that it is the right time to exit, not because the masses start panicking.
Back to the beginning, should you sell your shares, because you are becoming increasingly worried about a bear market? Well, if you are planning on selling now and buying again later for a premium, most certainly go for it. This, I assume, was your strategy all along. Sell high, buy low. If, however, you are only starting to get nervous because of market volatility or the doom sayers predicting the end of the world, then switch off your television, stop reading comments about the end of the world and remember why you bought the shares in the first place. Go back to the drawing board and confirm your strategy.
No one knows what will happen tomorrow. The downward trend might continue and we see a bear market, losses of 10 or 20%. Maybe even more. Anyone who can tell you that for sure is an awesome psychic. Is it worth fretting over? Only if you think that you won't be able to sleep for the next twelve or fifteen months because the market is bright red, rather than the beautiful green.
Property values go up over time, a glass of beer today is more expensive than it was ten years ago, you pay more for a bottle of milk than your grandparents did. Everything in life becomes more expensive. Inflation alone drives prices up. Healthy companies and their shares will go up just as properties in good locations will, over the mid- and long-term, gain in value. Sometimes there are downtrends, only to be followed by an upward trend.
Life is unpredictable and so is the stock market. One thing is certain, just as the sun will rise tomorrow morning, the stock market will eventually go back up.
Good luck and enjoy your investment journey.