Feel like you’re on a roller coaster with your investments? I definitely did last week when the market plunged due to massive economic uncertainty. Investors are feeling uneasy as whispers of ‘double dip recession’ float through the media stirring up anxious conversation.
I certainly don’t want do downplay last week’s market losses, but frankly it’s unwise to get all hyped up and cash out your portfolio. That action is counter to the most fundamental investment principle of all time: buy low and sell high. Stats show that emotional investors, those who hop from investment to investment, return less than four per cent on their portfolios in the long run. Those who take a long term view on the market and stay invested in quality stocks return upwards of 12 per cent.
Sure, it’s natural to get upset when your net worth plummets 20 per cent in a week, but rest assured, economic and stock market cycles (expansion, peaking, retraction and the trough- bottom of the barrel) have occurred many times in the past and people survived.
Why not take advantage of the market volatility and, with the advice of a financial advisor, consider buying investments that have been badly "beaten down." Then, follow in the footsteps of Warren Buffet and hold on to good stocks for the long term allowing for appreciation and dividends. According to Buffett, this is equivalent to bargain buying – my favourite type of shopping. Focus on companies with solid financial performance, strong cash flows, low debt and a history of quick recovery post market pull back.
Not even the most magical crystal ball can predict when the market turmoil end. Put your emotions aside, get advice and take a long term investment view like Buffett.