3 words that have been constantly attached to the recessionary economy and consequently to companies in the stock market while falling. Luckily for me, these are the type of words that I try to and most of times successfully ignore. And here is why you should do the same:
What is Uncertainty? For me, it is the momentary inability to make a decision under strange and difficult to understand situations. And we, as investors and human beings, tend to become overwhelmed with it during economic crisis, stock market sharp decreases and crashes. Uncertainty causes dispair and stress, which is certainly not good for anyone's health, and learning to ignore it, is the hardest part. Great value investors have taught us that we should take market uncertainty as a buy signal, generally speaking, and I do believe this true. If you have read 'One up on Wall Street' by Peter Lynch, you know that, historically speaking, during the times when people pull their money out of the stock market because of sharp declines, those are, usually, the times in which great companies get marked down. So there's an opportunity. And this keeps happening, it's not just 10, 20, 40, or 60 years ago. Take January 2009 for example, practically anything you bought would have risen many percentage points two years after. Who would have guessed it? After Lehman Brothers collapse who would buy company stock? Insane people? NO. Value investors were! A lot of intelligent buying was coming in, and it didn't take a rocket scientist to see that opportunity. And this is what is important to understand! There is no better time to invest as when people are afraid of losing more than they have lost already and they take the money out of their stocks and put it in money market funds, time deposits or bonds.
Nevertheless, I am an apologist of buying companies for their fundamentals rather than attempting to filter the economy sentiment, or the market sentiment. Great companies are successful with bad or good market sentiment, the question is: Which ones? Only you know. But, once you find those companies you need to hold on to them as long as their value is far from fair or even if they reach their fair value, they might be great dividend-payers and recession survivors, so you should keep them for protection and extra income.
Volatility is an investor's worse enemy. I have, many times, succumbed to the 'powers' of volatility and sold stocks when I should have been buying more or simply holding on to them. Great Value Investors have taught us that if you have a great company, hold on to it, during bad or good times, because value will eventually out. But learning to cope with volatility and trying to ignore it, is hard, but it is something every Value Investor needs to learn. I have learned it the hard way when I started out. Although I didn't lose thousands and thousands or millions and millions of euros and dollars, I lost some money. But happily enough, I have managed to recover it and some more. Today I keep a portfolio of stocks from many countries, ranging from small caps to large caps. Interestingly, I have recently started to build a portfolio of Portuguese companies, simply because I've checked the fundamentals, spoke to insiders and I believe in most of them. And because eventually our economy will improve and so will the companies. Maybe my Market Timing isn't the best, but importantly enough I do not Fear volatility or market declines anymore. Timing the market is a rather hard skill to develop, the largest percentage of that skill is luck I believe. With the amount of variables playing the market and the economy it is impossible to do it with 100% efficiency. I want to keep those stocks until I make a handsome profit on them. And if that takes 5, 6, 8 years. So be it! Unless the business starts to deteriorate, I sell them, otherwise I will keep them.
I am currently reading 'The Intelligent Investor' by Benjamin Graham, and I highly recommend ir for those who suffer from these 3 conditions.
The key take away from this post is that, Value Investors know their companies and believe in their investments, so it's not volatility, uncertainty or fear that will make them sell their companies. It's their own judgment and opinion of the companies that might. Other than that, they keep their companies until they've reach a stagnant point of growth, and even then, they might start paying nice dividends making them keep the companies for a long time.
Keep investing.
Take care,
J.P
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