“Hey Dad, my stock portfolio is going down should I take my money out?”
That would not be a good idea, kids:
That’s called, “buying high and selling low”, which could be a recipe for financial disaster. When the value of your stock portfolio is declining, you need to answer some specific questions:
Is the overall stock market declining?
Has there been a fundamental shift away from the company and its core products?
Is the company profitable and still growing?
Is the company dominant in their field?
Do you still believe in the company, their products, and their direction?
If the overall stock market is declining (they call that a “Bear” market) and if you are still comfortable with the investments you made, then it’s time to buy more. Why? Because your investments are now on sale. You get to purchase more of what you’re invested in for a cheaper price. That is not a cause for concern.
However, there is a cause for concern if:
The public no longer sees the company as one that provides quality products and service
The company is not profitable.
The company is no longer a dominant player in their field
You would no longer buy their products and service.
As a real-life example, on 10/28/2022 APPLE’s stock price was $155.74 (look it up). By 01/01/2023 APPLE’s stock price had declined 16.6% to $129.93. Some people who bought at $155.74 bailed out of the stock as the price fell. They in essence bought high and sold low, with the mindset that they were limiting their losses. If they sold their APPLE stock on 01/01/2023, they lost $25.85 per share owned. If they sold 100 shares, they would have lost $2,585.45! No stock ever goes straight up indefinitely (where is AMC Entertainment Holdings stock now?), not even APPLE. Know that you don’t lose money in the stock market until you sell at a loss. And the goal is to never sell at a loss. So, answer these 5 questions regarding APPLE:
Was the overall stock market declining in 2022? Yes, it was a “Bear” market.
Has there been a fundamental shift away from APPLE? No, people are still buying APPLE products.
Is APPLE profitable and still growing? Yes, APPLE announced the all-new MacBook Pro and M3 family of chips 10/30/23
Is APPLE dominant in their field? Yes, they own 56.41% of the smartphone market.
Do you still believe in APPLE, their products, and their direction? Do you like my iPhone 15 Pro Max? (I’ll take that as a “yes”)
So why would you sell your APPLE stock at a loss? We tend to be emotional about our investments instead of logical. I get it though. No one wants to lose money. However, let me repeat myself, “you don’t lose money in the stock market until you sell at a loss”. If you think it’s a good company/investment, and the fundamentals are sound, you stick with it.
At the end of the trading day on 10/26/2023, APPLE’s share price had increased to $166.89. If you bought APPLE stock on 01/01/2023, at $129.93 per share, when it was “on sale”, your gain would be $36.96 per share owned. With 100 shares owned, you would have a gain of $3,696.00. That’s a 28% increase! No bank is going to pay you that kind of interest. Want to understand how the rich get richer? Here it is, right here! The rich love this type of stock buying opportunity.
APPLE also pays you cash (called a dividend) for every share of their stock that you own, 4 times per year, just for owning their stock. You can then use that dividend payout to buy more APPLE stock, which will increase your next dividend payout, or use that dividend payout to buy yourself an iPhone 15 Pro Max or a PS5. It’s your money. It’s your choice.
Important Note: A similar approach should be taken with mutual funds inside and outside your retirement accounts.