Crashes create opportunities to buy if you can develop the right mindset.
No one knows when the stock (or stock market) has plummeted. People can guess - and every commentator hoping to get a little television fame will certainly do - but no one, no matter how many predictions they say you have gotten, knows when stocks or markets have plummeted. you will go.
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And, while trying as an investor to wait for better prices, that is a dangerous game you can play. Yes, you can get better by waiting, but you may also find yourself waiting a long time and missing out on the opportunity.
Lower markets, bear markets, market crashes - whatever you want to call yourself do not follow the rules. Market restructuring takes over the overcrowded companies that have brought low prices and also downgrades the firms of well-functioning firms.
As a long-term investor your job (or at least the best way to accumulate wealth) is not getting what you want. Instead, it filters out companies with a bright long-term future, where today's value will not matter, for companies that have seen their prices go down because they do not have sound business foundations.
It is not always easy to see that when you consider some examples:
Is Netflix (NFLX) - A long-term market leader or a company with a serious spending problem unable to fix?
Is Teladoc (TDOC) - the market leader or company the easiest to copy?
Will Zoom (ZM) - Will it continue to grow as the earth returns to something close to its pre-covid normal?
Do retailers like Costco (COST) - Walmart (WMT) - And Target (TGT) - have long-term supply chain / inflation problems or will current concerns pass.
There are investors and analysts who feel both ways in any of the above questions. But, the best thing about investing is that you have to put your money in stock when you have deep faith.
What Is a Long-Term Investor?
Long-term investors see low markets as an opportunity to add to their portfolios. Before you can think about it, you need to think about what it means to be a long-term investor.
A long-term investor buys shares in companies he intends to own for years - in fact, forever. Often, a long-term investor has an investment mindset - the reason why - they want to have stock. That thesis should give a long-term investor confidence in that stock even when the company's stock price drops.
Basically, a long-term investor looks at his or her holdings to ensure that the company has not made a change that makes it different from that thesis. For example, did the CEO change and the new leader made a big change in the way the company operates? Or, something big happened in the market that caused you to change the way you see the company’s prospects.
Long-term investors understand that many companies - Amazon as the most popular example - are not able to deliver quarterly results. Instead, their leaders make the best decisions for the company to succeed for decades, not quarters. That’s why Amazon (sticking to the model) is determined to have the areas to lose money where it invests in the infrastructure it needs to be successful in the long run.
Such a move may lower the company's price, but it is hard to argue that Amazon (and many other leading companies in the market) are not ready to view their business as a long-term business, not a quarterly job to publish news.
How Do You Get Rid Of A Bear Market?
Lower markets, bear markets, and stock market crashes put good companies in sales. If you have a company that you believe in (and probably already have) you can buy stocks with full confidence that you are making the right choices for your future, even if the bear market continues to stock up.
Long term means years, sometimes decades, and prices fall due to market conditions or major economic conditions allowing you to buy stocks and make what is known as a dollar cost averaging. This is where instead of waiting for the best price, you buy stocks as the funds allow, measure the amount you have paid to have stock in the company.
A falling market actually allows you to reduce the average cost per share of your asset when your share price drops below what you originally paid.
The challenge - and the big one - is that long-term investment means you have stocks for a long time (or too long). At the moment, that may mean that your portfolio has had a huge impact, but if you believe you own the company over time, then holding on to and adding to those positions makes sense.
And, although I am a spokesperson for long-term investment, I am not alone in that as the famous investor Warren Buffett followed the same principles and presented some famous quotes on the subject.
"Someone is sitting in the shade today because someone planted a tree a long time ago," he said.
The Oracle of Omaha also mentions two other things that reflect this philosophy,
"If you do not intend to have stock for 10 years, do not even consider having it for 10 minutes."
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