Have you ever bought a stock, and instantly had buyer’s remorse as you saw it fall in price?
Well in a recent episode of The Investing for Beginners Podcast, co-hosts Andrew and Dave fielded a question from a listener who had to deal with just that. After buying a stock and seeing it fall, the listener worried about having made the wrong decision despite being confident when buying it.
Later in the episode, Andrew and Dave answer 3 other great questions regarding investing from listeners, and I’ve summarized all of the answers in this post. You can listen to the episode right here on this page (below).
Question 1 – I bought WBA and all of the fundamentals look good but it’s starting to drop in price. Did I miss something?
It is not uncommon whatsoever for a stock to drop in price after you bought it, and for you to feel buyer’s remorse because of that.
The key is for you to stay focused on the long-term goal, which is why you chose to invest in that stock in the first place.
In this case, WBA is closing 3% of their stores, which might sound bad, but it may actually help the company generate more value in the long-run as they can focus their efforts on the higher performing locations. If nothing has drastically changed since you bought the stock in regard to the key factors that made you buy it in the first place, there is no need to sell.
Andrew provides a great metaphor here – if you bought a house in a booming housing market, such as Austin, TX, and the price dropped $25K in a single year, would you feel a similar buyer’s remorse?
You might be, but if the market is still growing and it doesn’t seem like anything has changed, such as a natural disaster or a lot of new crime that would impact the market on a long-term basis, this is more of just a blip on the radar. That happens sometimes. The key is to stay patient.
WBA recently was a strong buy on the Value Trap Indicator (VTI) so that should help ease some of your concerns. No big news have really caused a fear that things are changing so there is not much to be afraid of.
In this case, it seems like a lot of the fear is arising from the fact that it is your first purchase – and guess what, that’s natural!
Dave felt this exact same way when he bought his first stock, MSFT.
Dave decided to give himself 3 months before doing anything with the stock. After those three months he could then reevaluate his decision.
- Write down why you decided to buy the stock. If those things haven’t changed, resist your feelings of buyer’s remorse and don’t freak out. You bought the stock on its financials and fundamentals, so unless those things have changed, neither should your opinion of owning it.
- Don’t look at the stock too frequently. Doing so can only be a bad thing and invoke impulse reactions, aka selling if the stock drops off some news. A great example is the case laid out where WBA closed 3% of stores and the stock dropped, despite the fact that this was actually a good thing for the overall health of the company
Question 2 – What are your general thoughts on the trade wars?
The trade war is a short-term issue for a long-term goal.
Unless you’re retiring in the next year, then who cares? If anything, view this as a clearance sale and a great opportunity for you to buy some companies that have great fundamentals but are being discounted due to news headlines.
Dave was once told that “Good or bad, people sell the news.” People either sell on good news for a quick profit or they sell on bad news because they have regret and want to get out.
Personally, I sell “selling the news.”….bad joke, I know… but that’s kinda my style!
If the trade war gets resolved, things are right back on track, so stay focused on your fundamentals and keep moving forward with your plan.
As Dave also said, “sometimes you have to go down to get off the elevator. You can still buy a stock when it goes down and it can go back up.” So, in other words, just because it goes down initially doesn’t mean you have to jump ship.
If you did that every time, wouldn’t that kind of be the definition of buying high and selling low? Womp womp…
Andrew laid out a great example that when the news broke about tariffs being delayed the retail stocks jumped up a lot. Did anything fundamentally change? No.
People are just selling the news!
Now is a great time to dollar cost average to continue to help protect you from these crazy variability that you see in the market.
I have personally found that when investing, I am my own worst enemy. Short-term Andy is the devil on my shoulder… you have to find your own way to ignore that devil.
- You’re a long-term value-investor… don’t try to day trade. Focus on your fundamentals and don’t let the day-to-day news cause you to make a gut reaction that you will inevitably regret.
- Time in the market beats timing the market. Focus on investing in good companies with strong balance sheets that are undervalued, and the rest will take care of itself.
- Dave Ramsey’s quote on investing is one to take to heart – “the only way to get hurt on a roller coaster is to jump off!”
- A great way to combat this is to do what Dave did with his first stock and make the stock untouchable, where you won’t sell it for X amount of time. Maybe 2 weeks, maybe 6 months, that’s up to you – but find a plan and stick to it!
Question 3 – What are Your Opinions of the Motley Fool?
Andrew thinks that they do a really good job of sticking to the fundamentals and the ‘going ons’ rather than the Wall Street reactions to news.
They won’t get too caught up in guidance and are focused more on the long-term investor.
They usually will talk about stocks that aren’t on Andrew’s radar which he likes because in general, the more a stock is talked about, the more likely it is overvalued.
In general, they do a good job with the key concept, big picture topics like diversifying, investing basics, etc.
Dave was a subscriber when he first started investing and he really liked that they found a way to keep the topic of investing interesting, when that can very easily come across as dry and boring to a new investor.
On the other hand, he wished that their company overviews went a little bit more in depth, but a silver lining is that it taught him what he needs to make a well-educated decision on a stock, and that was a much more in-depth coverage of that company.
- Find what works for you. Some people might love Motley Fool, some might not. Some might love The Investing for Beginners Podcast, some might not (those people would be wrong…kidding!).
- You need to find the best way for you to learn so that you can advance with your goals in the most efficient manner possible.
- Block out the noise vs. staying informed
- This is a fine line but one that Andrew has noticed. You want to be in the loop with what is going on in the world, so you can stay aware of potential pitfalls, and the Motley Fool can help do this with their news on their podcast, but you don’t want to make an irrational decision with this information. That is hard to do, but extremely important to not blur those lines.
Question 4 – Is Net Cash on the VTI Spreadsheet “Current Assets – Current Liabilities?”
In short, no – Net cash is just a part of the current assets.
For instance, if you have a home that is worth $300,000 and you only owe $100,000, your Current Asset Value of that home is $200,000, but you don’t actually have any cash, so your Net Cash is $0. If you sold your house, then your Current Assets would still be $200,000 (sold $300,000 house – $100,000 left on loan = $200,000 cash) and your Net Cash would now be $200,000.
Again, long story to say that no, net cash is simply one part that makes up the Current Assets.
- My main takeaway has absolutely nothing to do with the question – but rather to keep asking questions! I guarantee many of you didn’t know the answer to this, so I thank the listener for asking! These are the types of question that truly help people understand the numbers rather than simply going “Net cash looks good, I’m going to buy”. Great question!
I hope you all enjoyed this episode and this summary as much as I enjoyed listening and writing it. Have a great week and I’ll follow-up with another summary next week!