Why I Don’t Care that the Stock Prices went Down
The market is down. It’s up. It’s down again, up again, down again, and up.
What’s going on? More importantly should you be worried? What should you do with your investments? What’s happening!?
For over two years I’ve heard from very smart people, “Carly, the stock market prices are ridiculously high, should I get out of the stock market? Aren’t we due for a correction? The market is going to crash!!!!”
To put it plainly: I don’t care that the stock prices went down, and I don’t care if they continue to fall.
In case you’ve been living under a rock, the last week has been a bit of a roller coaster ride with the stock market.
Here’s a quick summary of what’s happened recently with the stock market.
The Dow Jones, an index that’s used as an indicator of the general U.S. market conditions, reached a record high on January 26th. After falling and rising multiple times since then, on February 8 the Dow fell by 10%, which officially is considered a market correction.
A correction means that the stock simply adjusts for an overvaluation and is a temporary decline in an upward trending stock. A market correction can precede a recession, but not necessarily. Market corrections happen frequently and typically last around three to four months.
Yes, it’s a bummer to login to your account one day to see your investment at $XYZ value and the next week that value dropped.
Here are two reasons why I don’t care that the stock prices went down.
1. The buy and hold investing strategy
Buy and hold is an investing strategy that means when you buy an investment you want to hold, or keep the investment for the long-term, regardless of fluctuations in the market. Investing is for the long-run and you want to keep your investment for 10, 20, 30, or more years. During that period the value will drop and that’s ok.
Famous investor Warren Buffett is an advocate of the buy and hold strategy and he went as far as saying:
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
2. If you sell when the value goes down, you lose
The second reason I don’t care that the stock prices went down is that I don’t want to sell and take a loss.
Intuitively people do the exact opposite of what is a logical move when investing. Logically, you want to buy low and sell high. When investing you want to buy an investment that will earn money and increase in value. If the value of a stock declines and you sell your investment, then you’re locking in the loss.
People are driven by fear that the value of their investment will fall even further and never bounce back.
In reality, if a stock’s value goes down you should consider buying the stock.
Think of the stock declining as getting a bluelight special.
Imagine that you’ve been saving up to buy yourself a nice purse. You have the money saved and coincidently the purse goes on sale- it’s now 20% off. Would you freak out and not buy the purse? No way Jose. You’d be even more confident in your purchase and feel like you got a deal.
Buffett also said, “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”
That is why I don’t care that the stock prices went down.
I believe in the buy and hold investing strategy and I don’t want to sell my investment when the value temporality declines to take a loss.
P.S. Want to learn more about investing? Best Money Class Ever starts soon!