Share price drops: There is a fascinating quote by the genius of investments Warren Buffett, who says: “A market is a machine that transfers money from the impatient to the patients.” Watching your asset prices plummet is not easy in the face of volatility and short-term uncertainties.
When we look at the wisdom of Buffett, one of the greatest investors in the world, we understand how much the financial market involves more than the movement of the stock price. And knowing what to do when the share price drops help you go further in investing.
- Take a long-term view
- Investors with a long-term view of investing generally get the best results.
Investors who want to invest in the long term must remember that their mission is to become a partner in large companies and not just to monitor the share price daily.
In the long term, studies show that variable income is always the most profitable option, and the investor who wants to invest successfully should always focus on the longer term.
That is, even with moments of crisis and fall in the stock market, the result is always optimistic in the long term. This is the philosophy that every investor should have of the financial market, that is, a place where money is invested with the intention of one day living only on its income.
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Reflect On The Reasons You Bought Your Shares price Drop
For the long-term investor, shares are just instruments to achieve their objective, which is to monetize capital and increase their equity.
In other words, the “buy and hold” investor has a future vision. Above all, he focuses on being a partner in large companies, obtaining income and capital gains.
The buy-and-hold strategy is to buy the best companies from a fundamentalist point of view and hold them for an indefinite period while they continue to have multiple attractions.
This way, when stocks are falling, remember the reasons that led you to invest in these companies, even if your home broker shows many negative numbers. If the reasons for owning these shares are still well-founded, then don’t sell your assets.
Analyze Business Fundamentals
Among the various investment schools, fundamental analysis is characterized by being one of the most coherent and sustainable in the long term.
After remembering why you decided to invest in a particular company, study its fundamentals again. How is the company’s cash flow? Have you analyzed your multiples? Did you become aware of the most recent facts about the corporate environment of this company?
Thus, when interpreting the numbers and comparing them with the quality of the company in question, a reflection is necessary: did the fundamentals change after the stock crash? This is important to analyze, as many market declines have nothing to do with company fundamentals.
Why will you sell your shares if the company remains with constant profits and controlled indebtedness?
Understand The Logic Of Variable Income
Most investors do not know how to deal with the fall in asset prices. Mainly because they do not understand the logic of how the capital market works.
How to invest in stocks? A practical guide for investors
The market doesn’t go up in a straight line; stores don’t go up in a straight line; within ten years, where stocks appreciate a lot, there are many periods of decline in which the investor will see his equity devaluing, and this is entirely natural. In the market.
In this case, economic crises and political noise directly affect the stock price. But unfortunately, it isn’t easy to see which fact or news is affecting the price of assets at that moment.
So if you are positioned in the stock market and watching your stocks fall, try to understand the biggest motivation for the price drop. You should rethink the chosen asset even if stocks are down due to problems in the companies’ business.
However, in many situations, the share price has nothing to do with the company’s fundamentals, which may be at its best, but the stocks are falling.
With Falling Stocks, We Find The Best Opportunities
It is essential for the investor to keep in mind that stock prices fluctuate, both positively and negatively.
Let’s think together: if the company is doing well and its shares are falling, this asymmetry is likely in your favor. Let me explain. In the scenario of crisis, volatility, and stock fall, opportunities arise for the most patient. For the impatient, falling stocks mean panic and loss.
However, for the logic of the long-term investor, if the company is having an extraordinary moment, but its stock is falling, it may be the best time to increase its position and make new purchases.
In other words, when the “herd” sells its assets desperately, you buy more shares, thinking about making a profit in the “bona” periods. This is the effect Buffett calls transferring money from the impatient to the patient.
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