If you are investing for the long term, you can expect to run into a few bumps along the road.
Over your investing lifetime, there will probably be market corrections, trade wars, and recessions.
Should we be scared?
I don’t think so.
In this sort of situation, I like taking a look at Warren Buffett. The Sage of Omaha made his first investment in stocks when he was 11 years old and in the subsequent years has invested through global recessions. In fact, much of his wealth was made from picking up cheap stocks during the recession in 2008.
What should we consider when it comes to market troubles?
When will it happen?
Each year, there seems to be a prediction that the next global recession is on our doorstep. The prophecy is always that the next one will be bad. Will it?
I can’t say one way or another. And I don’t think anyone can.
Write down your investing principles and follow them. If you see a company you like that is trading at a price below its intrinsic value, is it worth holding off buying on the off-chance there will be an impending recession?
Turn off the noise
Rather than following the crowd, I think it’s better to switch off the noise and draw your own conclusions.
During the next recession, I’m sure that stories will be written about people selling off their stocks. There’s no reason why you have to follow suit.
Investing is more successful when emotion is stripped from the equation.
Remember your investing principles
On my desk is a list of criteria that I want a company to hit before I would consider buying shares.
Like Warren Buffett, I think the best buying opportunities are well-managed companies, trading at a price below their intrinsic value, with a fantastic product and with a competitive edge.
During a recession, companies trading below intrinsic value might be easier to find.
The same goes for selling. Why would I sell a share if it still ticks all my investing principle boxes? In fact, during a global recession, there might be an argument for doubling down and buying more shares in your holdings.
A well-managed company with a great product will probably ride out most storms.
Don’t panic
In a recession, I believe the worst thing you could do is panic sell.
Seeing your portfolio lose 20% in a day is scary. That is why you should consider your risk tolerance levels.
If you don’t think you can stomach it, maybe you should consider adding bonds or another, less volatile asset into your holdings.
Selling off your stocks in a recession turns a paper loss into an actual loss. Unfortunately, sometimes selling is necessary. But before you do this, I think you should ask yourself why you bought into the company in the first place.
If nothing has changed, is now the right time to sell?
