Most investors have regrets of one sort or another, but there's one error that stands out, according to Real Money columnist Paul Price.
That's because the opportunities occur infrequently and seldom last very long.
“What is the one thing true investors hate more than almost anything else?” Price asked in a recent column. “Looking back after major selloffs and seeing the incredible buys they could have had if they'd been braver during brutal downturns.
For example: "Simply glancing at the charts of old favorites from March 2020 proves you could have made doubles, triples or even more by jumping in when things looked horrible.”
Don’t Make This Mistake
One of the central pieces of investment advice that Price gives most often is this: Do not miss the chance to buy good stocks when the market is down.
At its heart, this advice is about finding the difference between what investors call specific and systematic risks.
Specific risks are the weaknesses inherent in an asset.
For example, when a company has a failing business model or poor leadership, those issues might drag down its stock price. These are specific risks.
Systematic risks are those spread across an entire industry or market. For example, when the coronavirus shut down retail and service businesses, all of those companies took big hits. This was a systematic risk across entire industries (indeed, the whole stock market for a while).
The problem, or rather opportunity, with systematic risk is that it often has little to do with the companies involved. This can lead investors to sell good companies because they’re worried about holding any stocks at all. Prices will drop and savvy traders can make a profit.
Price recalled that “in my old pre-internet days, as a Merrill Lynch stockbroker, I used to tell clients that the lowest risk time to purchase is when their hands were shaking as they phoned in a buy order."
Periods of intense volatility are routinely followed by better times. The long-term trend in stocks has always been higher.
In just the past 15 yers or so, rough times for the S&P 500 have struck repeatedly. The 2008 financial crisis was brutal. There were addition rough patches in 2010 and 2011. In 2016 the S&P 500 got off to its worst start in history.
Christmas Eve, 2018 proved to be a very painful bottom to a severe decline which started right after Thanksgiving of that year. That five-week period was marked by the Fed's beginning to raise interest rates. Does that sound familiar today?
We all know why equities tanked in March of 2020. Despite unprecedented bad economic news and government-imposed business shutdowns that proved to be a fabulous time to buy, not sell.
Given the multiple drags on the market currently -- the Russian invasion of Ukraine, surging inflation, recession fears -- it seems likely that now is such a time as well.
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Past performance is no guarantee of future outcomes. If you're considering a trade you should consult with your investment professional.
