Anyone else getting a little motion sickness from the dive the stock market has taken since the start of the year, and especially this past week? I have had a few friends reach out and ask me what I’ve been doing this past week regarding my portfolio. The answer, I think some of them expected, was that I was selling – sell, sell, sell!! But, actually, I have been watching, waiting and buying. Don’t panic sell! Now is not the time to sell.
Now, you may be thinking, the market is way down, I need to pull my money out of the market before I lose anymore. That would be a mistake. As of this writing, the S&P 500 is down close to 8% this year and the Nasdaq is even worse. We hold shares of Netflix, Disney, Tesla and Amazon among others that have all been hit super hard this week. Netflix had an earnings release and came up short with new subscribers for Q4 2021. Worse yet, they are only expecting 2.5 million new subscribers in Q1. They’re telling us they are experiencing a slow down in new subscriber adds. Disney is getting clobbered, too. Traders are selling off Disney because of Netflix’s bad news. Amazon is tumbling because of inflationary fears, and in sympathy with the rest of the market.
The sky is falling! But don’t panic sell
The overall market is down and it’s all doom and gloom–Omicron/COVID spikes/fears, inflation, supply chain issues, the Fed raising interest rates, oh my! So this is how I look at things; it’ll be okay. Why do I think this? Check out this chart. It’s the S&P 500 since 1950. The gray shaded portions of the chart are when this country (the US) went into a recession, the white portions are periods of growth. The chart has its ups and downs. It has a period between the 70s and 80s where it’s stagnant. Notice all the white and the long term movement of the chart; up.
Netflix is getting hammered right now because a lot of Wall Street traders are spooked that Netflix is going from a growth stock to a more mature one. It’s all part of the life cycle of a company – companies don’t stay in the growth phase forever. I like Netflix because pretty much everyone I know has a subscription and uses this subscription a lot, even before the pandemic. “Netflix and chill” is part of the nomenclature. I believe that Netflix is a strong healthy company. I’m going to hold shares because I love this company. There’s nothing fundamentally wrong with the Netflix business model – its a sound business releasing great content that keeps people coming back for more.
I am bullish on Disney. Disney is going to do well, too. It’s one of the best run companies and is ubiquitous in our culture. I hadn’t really had a desire to go to Disney before becoming a parent. Now that I am one, it’s a matter of when we’re going to go to Disney, not if. Not only that, it’s hard to walk through my house without tripping over something Disney related, whether its Baby Moneyaire’s Frozen bath toys or a Star Wars dictionary I picked up at Costco (another Moneyaire favorite) or what’s on TV (Encanto is awesome). I also believe that Disney has a long runway to grow it’s Disney+ offering.
Amazon is a behemoth. It’s not going anywhere, anytime soon. It’s going to continue to be a rock star company. Amazon has invested in its infrastructure and fulfilment – those investments are going to pay off. AWS (Amazon Web Services) is the leader in the cloud computing market. As we shop and live more in the cloud, AWS is projected to grow.
Buy low; don’t panic sell, panic buy
If you’ve read my rules on investing, this downturn should signal a buy opportunity. Sure, the market may drop further. If it does, keep buying. Ever wished you could have gotten in on a stock before it took off? Revisit those stocks. Now might be a good time to dip your toe into the water. The last few years have been a scorcher for investors. I was having trouble paying the high prices stocks were demanding. Now they’re on sale.
Let’s look at the data. When the housing bubble burst in the mid 2000s I remember the hysteria of panic. VTI is Vanguard’s ETF that tracks the entire US stock market. When you own this ETF, you own a little bit of all of the companies in the stock market. Now, if you had bought 25 shares of VTI in February 2009 for about $40 a share (about $1,000 worth) and held it through today (January 23, 2022), it would be worth $5,400. That’s not including all the dividend money that was paid out you could have reinvested. Panic buying can be quite profitable.
Buying low is scary
We’ve all heard about buying low and selling high, but most investors do the opposite. They do the opposite because when stocks trend lower, its during times like this when things are all doom and gloom. Most people panic sell. People buy high because a majority of the reports are sunshine and rainbows. Just a few months ago, stocks were breaking all time highs. When stocks are going up there’s this feeling they’ll continue to do so. They buy high and sell low.
Right now the market is on sale. Its a good time to start buying a few shares, waiting to see what happens and then buying a few more and holding until the market starts going back up. If you have money in cash, now is a great time to start putting a little into the market. If you’re hesitant to buy, buy a share or two of a broad index ETF like IVV, VTI or VOO or a mutual fund like VTSAX. Then sit back and see what happens. If it goes down more, put a little more towards it. This is what is referred to as “catching a falling knife.” Its going to feel painful, but the hope is that eventually the market will start going back up.
If you’re open to more risk, buying stock in a company like Netflix, Amazon or Disney could be a risky move that will payoff in the long run. If you believe these companies are going to be profitable and do well in the future, now is a great time to start investing in them.
Above all else, don’t panic sell your shares. Don’t sell low. Don’t be kicking yourself when the shares go back up and you feel better about buying in again.
P.S. Remember that you could lose all your money when trading in the stock market. Investing comes at great risk and if you want to put your money in a safer spot consider buying bonds from the US Government.
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