How To Regain Your Confidence in A Declining Market

This article is for you if you’re confused; in doubt about investing or having difficulties coping right now in the bear market. These days the market is up one day and down the next. What I experience from some people is a loss of faith in the stock market because stocks are continuing to decline.

If you are a beginner value investor and have bought stocks at a margin of safety price but the stock price of your wonderful business is continuing to decline, my advice to you is to review the case you built using your checklist. Read the case, reflect, and review what you wrote. In my experience this will restore faith.

An important discipline within value investing is being the devil’s advocate and inverting the case of your wonderful business. In this environment it’s easier to think in “worst case scenarios” – add those scenarios to your notes and reflect on how this company will survive these scenarios. Remember to be realistic – don’t be overly pessimistic just because the market is. If your company is wonderful, continue to believe in your case and follow the strategy you set.

Once you’ve reviewed what you wrote in your checklist, you can recalculate the stock price to check the company’s intrinsic value and margin of safety price. If you took my 5-week workshop you have a calculation tool and if not, then you can find a calculation in this article

When you’ve reviewed the margin of safety stock price, it’s easier for you to decide if you should buy another tranche (another word for portion) of stocks at the lower price now or wait until the stock reaches a new entry price from your valuations. Or if the portion of stocks you already own is enough for you and the position should stay in your portfolio for the next 10 years.

If you don’t have a case, now is the time to build it. Watch this video on how to use a checklist and download my free investing checklist.

I'm being contacted by new value investors, who are doubting themselves right now and I understand them because I’ve been there myself. I’ve experienced a decline in the stock market and all the feelings of doubt in my own abilities as an investor and doubts about value investing as a strategy. What helped me through some of it was reviewing my case, reviewing the company and this restored my faith, so I bought more. This turned out to be the right strategy to follow because what happened was that the stock price of this company started to go up again and it turned out to be a fantastic investment that gave me a large return. Because I’ve experienced it before I’m calm, confident, and focused and my hope for you is that you will get to experience this state of mind too. It comes with experience.

Value investing takes patience, and we don’t know how long this decline is going to last. In the end of 1970’s and beginning of 80’s we experienced high inflation, and it took a decade to get back. We don’t know how long we’re going to stay in this bear market, so you must be thinking about the long-term gains and not have the same short sightedness as the crowd. 

Read more:
When should I sell my shares? 
How To Shift Focus from Fear in This Market
How To Recover from An Investing Mistake 


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