That’s how Legacy Research subscriber Margaret B. put it in a recent note to the team…
What the heck is going on? Help! Stocks are tanking. We need some kind of strategy. Give me a play to short this stuff or something. I need a lifeboat, as I feel like I am sinking into the abyss.
It’s no surprise Margaret feels this way.
Our regular stand-in for the U.S. stock market, the S&P 500, has fallen for four straight weeks.
That’s left it 12% below its all-time high in January.
The tech-heavy Nasdaq has fallen for three straight weeks. It’s now down nearly 20% since its peak last November.
And several of the recommendations we’ve made to our paid-up subscribers have gotten caught in the downdraft.
These are trying times. Especially if you’re at the start of your wealth-building journey.
If you got interested in investing over the last two years, all you’ve known is a roaring bull market. You’re not used to the market’s inevitable pullbacks.
And they can be scary.
They can even make you do things you’ll regret, like selling out of quality stocks.
So today and tomorrow, we’ll cover two bedrock principles of making money – and holding on to it – in the markets.
If you can internalize them… and make them part of your wealth-building plan… you’ll be able to avoid the rookie mistakes so many investors make. And you can build transformative wealth over time.
Let’s jump into the first principle…
When stocks are falling, like they have been lately, it’s tempting to hit the sell button.
Seeing your portfolio sink is stressful. So it’s normal to want to get rid of that stress by sitting in cash instead.
But that’s a mistake…
Bank of America (BAC) analysts studied stock market data going back to 1930. And they discovered that if you missed the S&P 500’s 10 best days each decade by trying to time the market, your total return would have been 28%.
But if you’d spent more time in the market, and held on to your stocks through the ups and downs, your total return would have been 17,715%.
The first gain would have turned $1,000 into $1,280. The second would have turned $1,000 into $177,150. That’s how big of a difference a buy-and-hold strategy makes.
But as colleague Teeka Tiwari reminds his readers, they’re the “price of admission” you pay for the shot at life-changing wealth.
Volatility is a feature, not a bug, of the stock market. You need to have a long-term goal and be okay with shouldering plenty of volatility along the way. It’s the same for crypto.
Teeka is best known as our crypto expert. But he worked on Wall Street… then ran his own hedge fund… before joining the Legacy team. And he learned to avoid selling early the hard way…
My biggest stock market regrets have come from selling too early. I’ve left millions of dollars on the table from dumping Microsoft (MSFT) and Oracle (ORCL) in the early 1990s… and Apple (AAPL) in the early 2000s.
Why didn’t Teeka stick around? He couldn’t stomach the volatility…
In the early days of a high-growth stock, there are always doubts about whether the company will make it. Huge bouts of volatility can amplify those doubts.
For instance, Oracle once dropped more than 80% during an accounting scandal. Microsoft often saw its stock swing down 30% or more. And investors constantly questioned Apple’s corporate direction as it transformed into the powerhouse it is today.
I first got into Microsoft and Oracle in 1990 and Apple in 2003. Despite their drops, had I kept $100,000 in each, I’d have an extra $122 million today.
Stocks can deliver life-changing wealth, but only for folks with the patience – and the guts – to ride out times like these without panic selling.
So my advice to Margaret – and to you if you’re also nervous about volatility right now – is to do nothing.
This may feel like an abyss. But it’s just the stock market being the stock market.
As long as nothing has dramatically changed about the underlying businesses you’ve invested in, there’s no need to change course with your investments.
Here’s Teeka with the last word on that…
Don’t confuse current volatility with a permanent erosion of capital. Enjoy your life, enjoy your children, enjoy your grandchildren. The stocks and cryptos you own will do their own thing daily. There’s nothing you can do about it.
Sitting in front of the screen and praying won’t move you toward your goal of financial freedom in any way. Getting in on great investments… and sticking with them for the long term… will.
That’s where our second bedrock principle comes in. More on that in tomorrow’s dispatch…
Meanwhile, if you haven’t seen it already, make sure to download the new crisis investing report my team and I put together.
It combines insights from Teeka, Jeff Brown, Nomi Prins, and Dave Forest on today’s best profit opportunities. And it’s free to download for all Daily Cut readers, no strings attached.
You’ll learn about our top way to play the surge in energy prices… why now is a great time to buy bleeding-edge tech stocks at steep discounts… what Teeka is focusing on in the crypto market right now… and more.
Access our free crisis investing report here.
Until tomorrow,
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Chris Lowe
April 27, 2022