Today is a sea of red and it’s a good opportunity to discuss the difference between a “company” performance and the stock price. The market stock prices as a whole are all down today and possibly in response to international challenges in Turkey and other unknown factors. The market will have days like this and our stocks (the prices) will be down more than the market due to their high beta. But I want to reiterate that I invest in strong, fast growing “companies”. The stock or “stock price” of those companies may or may not reflect that strong company growth in the short term, but the stock price usually catches up with the company performance (or lack thereof) in the long term. Some people, including me, use days like this as an opportunity to get into a position on one of the companies they like that is performing well. I had a couple of questions from a few people off-line about selling all these stocks that are down today. They are all down. But I can count 10 days in the last 15 where these stocks were up incredibly. They are up overall 50% in the last 90 days (and that includes the two I sold yesterday). Would you sell something up 50% which has the potential to be up another 500% just because it’s down 2-3% in one day? It would be like firing your star employee because they’re sick one day or because there’s a storm and they can’t be productive that particular day. Most of my stocks I have owned for over a year now already and expect to own them for at least another couple of years, unless I see a fundamental change in the “company”, but regardless of the “stock” price itself. I expect all of the companies I own have the ability right now to double, triple, or 10x themselves, or else I would not be invested in them. I sold two stocks yesterday because I don’t believe the companies are performing right now as they should be. I had on both of them over 18 months. I did not sell them because the market was up or down or because I thought the stock will be up or down today. I sold two stocks yesterday because I don’t believe those companies are performing right now (and for the foreseeable future) as they should be AND because I think there is a faster horse to transition those funds into now. I did not sell them because the market was up, or down, or because I thought the stock will be up or down today. I sold them because I feel there are better places to put my profits in better performing companies long term.
So in summary, I try to keep three things in mind:
1) I Focus on the “company”, not the stock price.
2) I try to Think long-term, not short-term.
3) I Look at the underlying fundamentals of the company first and only use the technical analysis of the stock price and volume secondarily to guide my entry and exit points. (I usually buy and sell in thirds of a position)
User question: Great reminder to keep perspective on down days. Can you elaborate on what you mean by “high beta”?
Victor: https://en.m.wikipedia.org/wiki/Beta_(finance)
Our stocks have a beta of 2 to 3…so they can fluctuate 2-3x the market…which by definition would be a 1.0 beta.
