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 


Comments

Post a Comment

Most Popular This Month

Where does Warren Buffett live? Your itinerary to Omaha

Image
If you ever have the opportunity to visit Warren Buffett’s hometown Omaha in Nebraska, this is what you absolutely must do while you’re visiting: Scroll down for more photos of his house Warren Buffett’s Home 5505 Farnam St., Omaha, NE 68132 You may think that a billionaire like Warren Buffett lives in a mansion in a gated community. But this couldn’t be farther from the truth. His house is a modest home in a quiet neighborhood of Omaha. It’s only a few minutes from Downtown Omaha yet the neighborhood is calm and quiet and absolutely lovely. It takes Warren Buffett approximately 7 minutes to drive from home to work at the Berkshire Hathaway HQ (unless he stops by at McDonalds – read below) One thing I thought was sweet was the water dispenser for passing-by pets on the sidewalk outside the gate. Gorat's Steakhouse 4917 Center St, Omaha, NE 68106 My husband and I had the most amazing experience at Gorat’s Restaurant, which is one of Buffett’s favorite places, where he takes family m
Read more

The Dangerous Illusion of Being Diversified

Image
Are you diversified? The other day a woman mentioned that she had read that diversifying would reduce risk, so she had bought a bunch of different ETFs to ensure she was diversified. At that time, she didn’t know about the fact sheet that every ETF has and that it’s possible to see a list of the stock holdings in an ETF. It turned out that there were major overlaps, the holdings were basically the same, and she wasn’t diversified as she thought she was. This story reminded me of one of my first experiences being a speculator. In my mid 20’s I invested in microcredit. I supported small, female businesses in Africa by giving a credit and in return earning a small interest. I knew about diversification, so I invested in multiple African countries and in many different areas of business (delis, hair salons, tailor, agricultural business etc.). To me it was more about contributing to these ladies, rather than getting my money back.  Overall, it went well - a few loans defaulted but overall
Read more

How to Pay Yourself First

Image
You might have heard about the concept of paying yourself first and here you’ll get my step-by-step recipe that can turn your focus from bills and expenses to being able to pay yourself before you pay anything else. Today you might be in a situation where everything you earn is going to expenses and fun. Most people pay their bills first but with this concept you pay your bills last. It’s really a mindset change more than anything else. You want your money to first and foremost go into “cash-flowing asset” and in plain English that means something that is producing cash for you. These are my steps; they don’t work for everyone, and ex. author Robert Kiyosaki would likely not recommend you do it this way because he would rather want you to set a goal on how you could earn more rather than cut anything out. But this is what worked for me and if you would prefer to set a goal like Robert Kiyosaki, jump to step #2 Step #1: Cut Down on Unnecessary Expenses Make a list of everything you buy
Read more

5 Myths About Investing and The Stock Market

Image
Here are 5 myths about investing in the stock market explained. The insights in this post will change a traditional view on investing, trading stocks or ETFs and about how the stock market works. Myth #1: The way to forecast if a stock is a good buy is by studying the graph. Behind door number one is one of the most common myths I see today. Many people will look at the stock’s price graph and if it’s been going steadily up over a period, they will buy the stock. The belief is that the past price and upward trend on the graph indicates success and that the stock is likely to continue trailing upwards. But the past doesn’t equal the future and the price of the stock is not equal to value of the business behind the stock.  If you’re currently buying stocks this way, a good way to make a small change is to add in a few steps before you buy the stock: Check the company behind the stock. Is it profitable or reporting a loss? Does the company have debt? And does the management have integrit
Read more