It has been a really turbulent market in the last few weeks and months. Up 300 and then right back down. I guess moves like that do matter too much anymore.
When I was a kid, if the market moved 20 or 50 points, it was a big deal. I guess that has to do with the fact that the Dow was trading at 1000-2000 at the time. As a percentage move, it is no different than the 300 point moves that the market regularly experiences.
The market is a fluid entity. It has to experience ups and downs in order for all the players to make money. If there were nothing but buys, then the stocks and the market as whole would just keep going up and everything would just be more expensive. Also, buyers would just dry up, and if there are no buyers, then the prices just naturally fall regardless of how much money the company generates in revenues and earnings.
Buying and selling is a fact of life. Sometimes they occur in tandem, and sometimes, buyers are the flavor of the day and sometimes sellers take charge.
The stock market afterall is a market. When we go to a market, we can expect to see all kinds of buying and selling. Money is always exchanging hands. That is how a market works. Sometimes we are the buyer, and at other times we can be the seller.
I see nothing wrong with playing the game. After all, it really is a game. The game can be won by buying low and selling high. That can be accomplished in a day or in decades. As long as a profit is to be had, the purchase or sale of a stock should be of no concern. We must buy high quality companies that are trading at a discount. However, when certain stocks are overvalued, selling them should also be considered. Along the way, we should be aiming to collect dividends from our investments and reinvest those payments to take advantage of the compounding effect.
As a matter of fact, in my trading account, I have T shares that are now underwater. They are not down by much, but down regardless. That is not a reason for me to sell. I will be collecting a nice dividend in a few weeks. I may not be making capital gains, but I am generating income. However, I will say that if the stock moves higher, I will sell it in a heart beat. Is that a bad idea? No, it is not. Nobody could make me believe otherwise. A win is a win- I know that for sure. I happen to own shares that I hold just for the dividend, and I do not sell. But, the shares in my trading account are fair game.
There are going to be times when the market gets hit. Someone is going to lie about earnings, a war is going to break out, someone might get elected who is in opposition to the status quo, and a host of other issues will creep into view. If the companies that we invest in are solid and based in sound financials, we should stay the course. Time will prove to be a benefit. The stocks should push higher. If we get nervous and sell a perfectly sound company at a loss, our investment capital will be reduced.
Heaven forbid, we sell a perfectly good company at a loss only to buy another company that is overpriced. This is a very common practice, and people do it every day. I know a few friends who have had actively managed portfolios that were decimated at the turn of the century because of that. If they would have left it alone, they would be in high cotton.
Sometimes, it is best to just hold the stock and collect the dividends and reinvest. Look at Buffet’s track record- It works. He does sell however, but he sells companies that have deviated from the direction that he thought they would take. If the fundamentals changed, he really has had no choice but to sell because the stocks will only hurt his ultimate performance.
If the fundamentals have not changed and the stocks are fundamentally sound, holding them and reinvesting is a tremendous way to build wealth.
Robert the DividendDreamer