Why it’s best to do nothing with your shares in a stock market sell-off

Last week’s dip and subsequent recovery is a microcosm of what we’ve seen happen in the stock market historically. The best course of action is to do nothing. 

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They say a lot can happen in a week, and “they” aren’t wrong.

Last week, the FTSE 100 closed at 7,498 on Wednesday — but by the end of Thursday, it had dropped 3.88% to 7,207.

In just 48 hours, “a lot” happened. 

Share prices tanked. Investors sold positions they previously held in stocks they clearly bought because they saw value in them.

But then share prices recovered. By Friday’s market close, the index had rebounded back up to 7,489.

Of course, the stock market correction was spurred by the heinous invasion of Ukraine on Putin’s orders.

Taking nothing away from the gravity of that atrocity from a human perspective, if we bring our inward gaze back to the Footsie, what happened over those two days?

Well, arguably — at least on paper — some investors who panicked then lost money that they wouldn’t have, had they held on for a matter of hours.

While the markets have been a little choppy this week, for the first three days the UK’s leading index barely moved at all, in relative terms.

Yesterday, it dropped to 7,238 at market close, while as I write this on Friday morning, the FTSE 100 has again fallen a little over 3% from yesterday’s closing price.

So what should Fools do with their investments? Take the money and run?

No. The best course of action is to do nothing

Last week’s dip and subsequent recovery is a microcosm of what we’ve seen happen in the stock market historically.

In recent years, of course, early-2020’s stock market crash saw the Footsie’s losses recovered within two years.

2007 saw the start of the most serious financial crisis since the Great Depression. The FTSE 100 began that year at around 6,200. 10 years later, the index topped 7,000.

This is why The Motley Fool always advocates for long-term, buy-and-hold investing.

Buy and hold. Three words, all equally important:

  • buy shares in quality companies when thorough research suggests there should be a good runway ahead towards growth.
  • hold through good times and bad. Let’s not forget that Warren Buffett said “Our favourite holding period is forever.”
  • last but not least, and — when share prices in quality companies are beaten down, not only should you avoid selling your existing stocks but you should also strongly consider adding to your portfolio! Buffett again: “Be greedy when others are fearful.”

Buying opportunities like we’re seeing with these miniature stock-market sell-offs don’t come around too frequently.

They can present a good occasion to buy shares in fantastic companies that you’ve had your eye on for a while, or even to ‘top up’ positions in your favourite investments within your portfolio.

Just make sure you have in-depth research on your side before committing to any purchase.

Remember — you’re seeking ‘best in class’ businesses for the long term to help your money work harder for you!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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