Playing the Long Game
Time and again, I see people raise the same concerns about flailing markets and whether they should get out before they lose everything. But my advice is always the same: A flailing market generally offers great opportunities for those who can stomach it.
Here’s how to bear down without losing your lunch:
1. Invest in strong brands. Investing in organizations that you value and buy from regularly will ease your mind during stock drops. If you and your loved ones actually use the company’s products, you’ll feel more confident that it will rebound.
You can also practice cost averaging to rebalance your possible losses while waiting for stock prices to rise. Perhaps you originally purchased 1,000 shares at $25 apiece, but they’re selling at $15 today. You can buy another 1,000 shares at the current market price to reach an average of $20 a share. But only do this if you’ve researched the company’s balance sheet and believe it can withstand future corrections before it rebounds.
2. Follow the experts. Pay attention to what Warren Buffett, George Soros, Carl Icahn, and other prominent investors buy, and then copy their strategies in smaller measurements. Make sure these moves align with your portfolio, however. Blindly following celebrity investors can lead to disastrous missteps.
For example, many people bought Coca-Cola stock in the 1990s simply because Warren Buffett held shares in the company, not realizing that the stocks were overvalued. Some individual investors lost money because they didn’t understand how different Buffett’s circumstances were from their own.
3. Build a diverse portfolio. The safest approach to investing is broad diversification. You can use some of your 401(k) to buy mutual funds or exchange-traded funds, which allow you to invest in many companies rather than betting on one.
But exercise judgment and restraint, and don’t try to protect against every conceivable threat. Understand the costs and rewards, and choose a few sound investments with which you’re comfortable. Because trying to figure out when to buy and sell can be stressful (especially if you’re inexperienced), my company recently built an app that allows people to exchange knowledge about markets and challenge one another to reach investing goals.
If you can maintain emotional distance from your portfolio and can handle a few bumps in the road, investing is one of the most rewarding learning experiences you’ll ever have. If the market crashes, don’t panic. Instead, buy up stocks at low prices. It may feel counterintuitive at first, but you’ll be sitting pretty when those stocks rise again.
About the Author: Brian Balbirnie is the founder, CEO, and a member of the board of directors for IssuerDirect. IssuerDirect is the creator of a new technology, Investor Network, a social investment platform where professional and amateur investors can share and educate themselves on publicly traded companies.