Everywhere you turn, it seems somebody is talking about the weak stock market. From a quick look at a chart for the S&P 500, I can see that we're down about 11 per cent since the last peak in November. And among many of the more volatile technology stocks I cover, the red ink is even worse.
Over this same time period, Apple Inc. is down about 23 per cent despite record earnings. Tesla Motors Inc. is down about 30 per cent despite starting to ship its latest electric automobile, the Model X sport utility vehicle with unique "Falcon Wing" rear doors. Small-cap stocks tend to get punished even worse in downturns. Sierra Wireless Inc., a play on the "Internet of Things" that I last wrote about in November, is down about 35 per cent since that time and is off a whopping 56 per cent since its earlier highs that same month.
It seems that whenever the stock market plunges, there is a dramatic increase in the number of people who think they can time the market and who warned us all about this coming disaster. The truth is I've still never met anyone who can successfully time the market with any degree of reliability. We don't know where stock prices will be tomorrow, next week, next month or even next year. All we can do, as investors with a long-term focus, is to take positions in high-quality companies and ride out market storms patiently.
If you bought shares of Starbucks Corp. back at $62 (U.S.) in November and are worried about the plunge below $55 as of last week, there is no need to fear. Bear markets go away. Coffee drinkers continue with their daily rituals. Management teams of great companies continue to execute on their business plans. Most great companies keep hitting new highs over time.
If you happen to have uninvested cash in your account right now it might be a smart choice to begin picking up some of your favourite stocks at discounted prices. But that doesn't mean it's a brilliant idea to hold on to piles of cash just so you can wait for these dark moments. I think that would be a mistake. Why? Because stocks tend to rise over the long run. It doesn't make sense to sit on bucketloads of money waiting for a bear market. The markets may double before falling 20 per cent to 30 per cent, and you'll lose out in the long run.
That's why my Strategy Lab portfolio isn't making trades right now. I don't have enough cash to do anything material in my model portfolio. But Strategy Lab isn't real life. In real life, most investors are able to save and invest fresh money in their portfolios every year. For readers in that situation, I think it makes sense to be cheering the market down and making new investments the entire time.
I've been through this before. I'll go through it again. I make investment decisions based on the quality of companies and their growth prospects. While valuation is important to me, I use it as more of a sanity check to ensure that I can benefit from significant upside over the next decade. With a strategy like this for buying stocks, I've never once lost sleep during a bear market. I'm very serious when I say that most days I do not look at stock quotes.
I get asked quite often if I write a newsletter or run any investing service beyond these Strategy Lab columns. No. I don't. But I got started with this investing philosophy by listening to David and Tom Gardner from The Motley Fool. I recently discovered David Gardner's Rule Breaker Investing podcast and absolutely love it. Podcasts are a great, free way of getting further educated on almost any topic. In a down market in which everyone else seems to be scared, I think you'll enjoy the rational voice of a proven long-term thinker like him.
Disclosure: The author holds shares of AAPL, TSLA, SWIR both in his Strategy Lab model portfolio and his personal holdings; he owns SBUX in his model portfolio only.