I still remember years ago when I bought a stock and it went down. The feeling is fear and pain. The red colors on your screen screams at you as if you need to fix it, get rid of it by selling it at a loss. But as I grew to become a value investor, I realised that this feeling of fear and pain is normal. What you need to do is know the reason and what is causing it.
The Philippine Stock market is on the downtrend. With market pundits and experts trying to rationalize the decline. I am not inclined to make another explanation about the matter. The only concern I have right now is this. Are there bargains in the market?
During the first few weeks of the decline I can’t see any bargains. I was on the sidelines waiting. Last week I saw some stocks that may be a bargain. And I have made a writing about that on this post. I might be early jumping into the pool but I am not in the business of predicting. My only mode of business is, is it a bargain now?
The Reason for Pain
Why do we feel fear and pain when our portfolio glows in red? Did you see that? Red colors makes you want to either fight or flee. Reading this paragraph makes you either want to fight me(angry) or flee(close this window) doesn’t it? It taps on our human nature. The reason we are feeling this way is because brokers know about psychology than you do. Red and green colors drives action, buy and sell, that’s how they make money. And the antidote to this is just not to look at it and look even deeper at what’s happening.
Ben Graham said that,
An intelligent investor is never ever forced to sell.
and its a profound statement. It means that even if there are red colors on your portfolio, a value investor is never compelled to make an action just because some other guy sold his shares. The reason stocks go down is because some other person sold his. If you are selling because HE is selling, what does that make you? You’re a lemming. A crowd follower. And that is not the way to intelligent investing.
Knowing Your Reason for Holding
One thing I realised to make the pain and fear go away is to look far ahead into the future. Would this company I am holding will still be around 20 years from now? And would it be more valuable then than now? If the answer is a resounding yes, then every point decline in stock price just means Mr. Market is giving you a chance to own this wonderful company.
The Cure Is A Wonderful Company
Thus, to make a value investor calm amidst a market panic is this: own wonderful companies at a bargain price. If you follow that rule, then not only would you be happy that the stock price is down. You’ll be cheering for the market to go down some more.