When the market is going through a period of turbulence and your portfolio takes a hit, it is often tempting to give in to the urge to sell the stocks that have suffered the most from the volatility. But is this really a winning strategy for long-term investors? In this segment of Backstage passregistered on January 10Fool.com contributors Jason Hall, Toby Bordelon and Rachel Warren chat.
Jason Hall: Are you taking action now or are you just doing it?
Toby Bordelon: I am, to a certain extent, slowly. I did a few things today. I can’t mention the name of the business because it was a trade today, but a business I watched very closely for some time as a favorite of many fools and the opportunity was there today, so I continued. But I’m also just sitting.
The thing is, you’re building up a cash position for scenarios like this. But at least for me, I don’t always want to fully utilize that cash position in situations like this because you don’t know where the bottom is. You never know what’s coming.
Jason Hall: Yeah.
Toby Bordelon: You are always ready for further potential declines. You have to take it into account, but on the same subject, you see an opportunity, you seize it. I mean, if you’ve thought to yourself, I’m very interested in this company, but I think it’s a little overrated. When it becomes less valued, [laughs] you take another look at it, and if it works, if it looks good, go for it.
There’s no reason not to, especially if it’s one you believe in for the long haul and really want to own, you should. I’ve been there before.
I remember the financial crisis of 2009, I made very good purchases, many companies that I still owned at the time. It was a hell of a ride. One of them being Microsoft it’s been there ever since. It took a while to get it up and running, didn’t it?
Jason Hall: Yeah.
Toby Bordelon: That’s the other thing while you were talking, I remembered that idea. You say some of these businesses that are down may never recover.
But there is, I guess you could say, a corollary to that too. Some of them will recover. I think a lot of them will eventually. But the question is, how long does it take? If you have a stock that is going to double over 20 years, that’s not so great.
Jason Hall: To the right. [laughs]
Rachel Warren: Not ideal.
Toby Bordelon: It’s not the kind of thing where I think you should look at your portfolio and tell all the companies that are down, I’m just going to keep holding because eventually they’ll come back or whatever. One, they can’t, but two, it can take so long to do it, they’re not great investments. You look at your wallet, what you have is what you have.
This is the situation today, accept this as a reality and ask yourself, given what I know now, do I still want to invest in this business? I think for a lot of them you could say, yes, of course I do.
But there may be issues that you wonder about and say, I don’t know if I like this for the next decade. If not, and you see one you like better, there’s nothing wrong with making that change, even if it means incurring a loss, that’s fine.
Jason Hall: Well yes. Above all, if you no longer fully believe in the profession, if the thesis is broken. The price, right?
Toby Bordelon: It’s exactly that. I think we have to get out of this state of mind. It’s a struggle for new investors. It’s not the case that I lost money and I don’t want that. I want to lock the loss. I don’t want to sell. I want to wait for it to come back.
Do not do that. Reality is what you see right now. You want to be invested in the best company you can invest in. Sometimes what you have, sometimes it doesn’t.
If you need to make a change, make a change and don’t let the fact that you’ve lost 50, 60, 70% deter you from switching to an investment that could be a much better investment.
You need to assess things as they are, not as you would like them to be in a hopeful world that might have existed last week and no longer exists.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.