U.S markets officially entered into correction territory after the Thursday’s sell-off (Feb 08). Majority of investors had been predicting this for last couple of years, but their prediction came to true just now.
As president Trump tweets, usually markets move up while economy doing well and go down in difficult time. But, this time it has been behaving differently. Actually, world economy is in general doing well; the US economy in particular is in very good shape. Based on recent reports:
- world economic growth is accelerating
- corporate earnings are at record highs and growing in faster phase.
- unemployment rate is low in at last couple of years, and
- inflation and interest rate are still lowest level compare to historical average
Then what are causes behind the sell-off – I really don’t know, but I can guess – my pure guesses: it could be rising interest rate; it could be fear of losing money; it could be human emotions. I can guess much more.
Therefore, the stock markets are just not about profits and money. It is a mixed of everything – human greedy & fear, emotions, profits, interest rate, history, guesses, believes, government regulations, political, and counts on. It is impossible to take calculation of everything and make decision to buy or sell any investments. So better put everything on side make decisions based on companies’ fundamental.
Anyways, the sell-off would have hit many of your net-worth, but you must understand it is a normal part of investing, especially when you put your money in stock market. And, I just calculated my net-worth this morning and realized that it was down more than 5%. As a retail investor, we can’t control the price moments of a stock or market. It is the fact and we all have to accept it.
So what I am doing in this market turmoil?
Before that, I would like to remind you that I am not a professional or licensed financial advisor or any sort of things, and no-body can tell you what to do without knowing your financial situations and risk tolerance, your expectations and your long & short-terms goals. My financial situation is unique and any move I make is suitable just for me. Please do educate yourself, learn as much as you can and do your own research or discussed with a qualified financial advisor before make any financial decisions.
As I said little earlier, I don’t know the exact reasons behind the massive sell-off, and I don’t know when it will take the turn up. But I do know (from the past market history) that owning a diversified set of high quality stocks that earn profits and pay growing dividends makes money for over time. Please keep in mind that history doesn’t repeat all the time, but history is our friend and teaches the most import lesson to predict the future.
I am an income focused buy and hold investor, and buy fundamentally strong companies that make profits by providing goods and service to people around the world, and share their profits with their true owner – aka shareholders. True value of those companies is independent of the day-today market price.
I think this is an opportunity to increase my assets at a discount price. Thus, I created a shopping list with companies that I like a lot, and have been slowly accumulating stocks. In the past, I reacted very quickly and buy stocks in single day.
But this time, I’ve set some rules to myself:
- buy one stock per day if market keeps falling
- buy a small position
- buy only if a stocks go below my target price
So far, it is working fine for me as market has been falling day by day so I was able to buy stocks at cheaper price. If market starts to tune up, then it is fine for me as well because I have an enough debt to pay-down so I could turn my focus to debt payment.
I understand that there is some valuation risks if rates keep rising and my my rate-sensitivity holdings, such as utilities and REITs, may take a short-term hit, but I believe if the company’s fundamentals are strong, then I would be fine for long-term. For instance, many of my big holdings have hiked their dividend payment despite this market storm, which gives me confident that my cash-flow keeps growing in good and bad time.
If you are one of the person who caught into this broad market sell-off and worrying about your investments, then I would say take a time and review each and every holdings in your portfolio and see if they have a solid fundamental with good balance sheet and can continue to make profits regardless of day-to-day market price.