Don’t Panic! It’s just the Market that’s dropping!

Dow Jones Industrial Average down 4.60%. S&P 500 closed -4.10%. The Nasdaq Composite  down 3.78%. Since is high Jan. 26, the Dow Jones industrial average has dropped 8.5%. But this is no reason for panicking!

Since his high since Jan. 26 the Dow Jones lost more than 2000 points and the stock markets world wide also decreased. The DAX (the German Index) drops over 2.5% today and the German Handelsblatt titles “”Panic broke out”.

Is this a reason to sell all your stocks? Should you panic, too, and resell all your shares?

Before you do so, just sit down, take yourself a cup of coffee, and think twice.

Markets are high right know. Everyone knows that. Markets are increasing since 2009. So, what? Do you really mean, shares are a bargain. The most obviously aren’t. There is so much money in stock market (and there will come more), that markets has to be high.

Does this mean, they couldn’t get higher?

Absolutely not! But no-one knows, if they will and how long. As long as we have a a lot of cheap money, it has to go somewhere. The last few days we see markets falling. So, what? That’s what markets are doing. They fall and they rise. Sometimes more, sometimes less. Sometimes over a short period, sometimes over a long period. That’s the game.

Does this matter to you?

Do not invest in a company, if you will panic at 50% loss. (Charlie Munger)

Investors lose nothing in falling markets. (Warren Buffett)


Well, I can say, it doesn’t matter to me. Because these short term movements of the market have no relevance for me. I didn’t buy a stock, because I hoped share price would be higher the next day, week or month. I bought, because I was and still am convinced of the company and that the company was worth buying. All criteria for a great company were fulfilled and that’s promised me a positive outlook.

Has anything  changed regarding the company?

Well, yes, the price. But the other criteria are still the same. They are still great companies and I’m still convinced that they will prosper in the future. So, why should I sell today? Just because other market players are doing so? That’s a stupid reason. And the wrong question. The right question has to be:

Would I buy this company today again?

If the answer is YES, then I have no reason to sell. The price says nothing about the company. It only says something about the market players. And these players don’t matter in the long run. Only the company does and its long term results. So, as Warren Buffet rightly says: “In falling markets, investors are losing nothing.”

So, if markets are falling every investor should be happy. It means, buying opportunities for him. Now, he is getting great companies at an even cheaper price. Wouldn’t you be happy to get a $50,000 car for only $30,000? Does the car miss anything just because you get it cheaper? Did you have to buy it without wheels or seats or without the motor? No! So, why should it be different with companies?

You’re right! It isn’t.

If you’re an investor like me, you’re not panicking and sell your companies. If you have some money left, you think about buying more of the great companies you still own or maybe some, you’d like to have, but who were to expensive.

Stay calm and be patient. Think twice about your decision. Don’t let the market’s emotion effect you. Sell, because it’s reasonable and the circumstances (not the price) of the company get worth. Don’t buy stocks without thinking either. It’s “value in relation to price, not price alone” that “must determine your investment decision, as Seth Klarmann said.

Maybe it’s the time to separating wheat from chaff.

 

 

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