The stock market does not have to be a sprint.
Yes, some people make money on short-term trades, options, and buying or selling based on technical analysis, but many investors take a long-term "set and forget it" approach to at least some of their portfolios.
Investors who think this way generally develop a thesis — an underlying case for why they want to own a stock — and only sell that stock if the thesis fully plays out and they see better opportunities for their money or if something changes that alters that thesis.
Short-term volatility does not matter for long-term investors.
Costco (COST), for example, was down around 5% late in the trading day on May 5.
Over the past five years, however, it's up roughly 336%. So, for the person who bought five years ago, a drop 5% still leaves their investment in a single share up from about $180 five years ago to $516 despite the single-day drop.
And, as the market falls, Costco investors (and investors in many top-tier companies) can ask themselves, "did anything change about my thesis for this stock?"
In most cases, the answer is no.
That means that despite the short-term pain, you should hold your shares because for a long-term investor, a broad market bad day doesn't matter.
Having long-term conviction takes courage, and it's easy to panic during down periods.
Holding steady as long as you believe in your thesis, however, creates the opportunity to make money.
Long-Term Investors Make Money
"It feels terrible when stocks are crashing, but there’s no better time for long-term investors to be investing. If you were an investor, the Internet bust felt horrible. Yet the S&P 500 is up 326% since the end of 1999," TheStreet Smarts Editor Todd Campbell said.
When a stock you have long-term faith in drops for market-related, not company-related reasons, that creates a buying opportunity.
Those are sentiments shared by Real Money Pro columnist and successful value investor Paul Price.
"Every great market goes through scary pullbacks," he said. "Buying sell-offs is the best way to profit."
Action Alerts PLUS co-portfolio manager Chris Versace also shared how he approaches down market days.
“In good times, bad times, and especially turbulent times, we continually revisit data for our investment thesis as it becomes available, be it hard data, soft data, or something from a competitor, customer, supplier, or even the company itself," he said.
"If the data points in the affirmative, given our 12-24 month time horizon, we’re inclined to use volatile markets like the one we are seeing today to build out a position at better prices than we saw last week or last month.”
Stay the Course (Or Even Buy More)
It's human nature to want to cut your losses in a bad market or on a day/week/month filled with red ink.
The reality is these days generally actually mean very little if you have a long-term mindset and own companies that you believe have a sound, long-term business strategy.
"In my view, there's no better time to call human resources and boost your monthly contributions to your workplace retirement plan," Campbell added.
"Dollar-cost averaging during bear markets increases the number of shares you own, while also lowering your average cost. That's a great recipe for making the most of the market when the bulls are eventually back in charge."
Doug Kass, a hedge fund manager and author of Real Money Pro's Daily Diary, also shared his thoughts on how you make money in the stock market.
"A fundamental analyst develops a research-based view of the intrinsic value of a stock. The more an equity trades at a discount to that intrinsic value -- the more valuable it is to a value buyer and the greater the "margin of safety" is for the investor," he said. "High stock prices are the enemy of the value buyer but low stock prices are the ally of the value buyer. Downdrafts are the ally of the value buyer -- so big market downdrafts sow the seed for opportunity. Buy low... sell high."
