Top 4 Reasons You Should Not Panic As An Investor (Guest Post)
I know your portfolio is in a deep sea of red, but what I want to tell you is this – you’re not alone. Many investors are also suffering from a huge unrealised loss in their portfolio, myself included (as at time of writing, my long-term investment portfolio is down by 20.0%.) And in case you might be thinking I am a “veteran” in investing, I only have about 2+ years of experience as a full-time retail investor, and is my first time I’m experiencing a stock market decline like this.
This post was originally posted here. The writer, Jun Yuan Lim is a veteran community member and blogger on InvestingNote, with username known as ljunyuan and has 736 followers.
On Monday evening (16 March 2020), Malaysia’s Prime Minister Muhyiddin Yassin announced the lockdown of Malaysia for a period of 14 days (from 18 March to 31 March) in a bid to stem the further spread of Covid-19 in the country.
Almost immediately, I read about news of fellow Singaporeans rushing to the supermarkets (even though its already late into the evening) to sweep them clean of fresh produces out of panic that supplies in Singapore may be cut as a result of the lockdown in Malaysia (as many of our fresh produces are imported from the country.)
I see some parallels happening in the stock market as well, especially over the past two weeks, where I see many investors emptying their portfolios and rushing for the exit doors out of fear.
I know your portfolio is in a deep sea of red, but what I want to tell you is this – you’re not alone. Many investors are also suffering from a huge unrealised loss in their portfolio, myself included (as at time of writing, my long-term investment portfolio is down by 20.0%.) And in case you might be thinking I am a “veteran” in investing, I only have about 2+ years of experience as a full-time retail investor, and this is the first time I’m experiencing a stock market decline like this (I hope that after hearing this, it makes you feel better.)
Before you make any rash decisions, I suggest you calm yourself down, and ask yourself the following 4 questions:
1. Why are You Investing in the First Place?
I’d like you to recall the moment you make the commitment to invest – why did you make the decision?
Some may decide to invest because they want to build a high yielding portfolio (with yields higher than their CPF Special Account), some may be more focused on the eventual capital gain they could possibly get from their investments, while for some, it may be a mixture of both.
So, which group do you belong to?
2. Why did You Choose to Invest in those Companies in Your Current Portfolio?
I certainly hope your answer to this question is not, “because of hearsay.”
Prior to investing your hard-earned money in a company, I really hope that you have done a thorough research about it, and have a good knowledge of the company’s businesses, financials, debt profile, dividend payouts, etc. well enough before you make the eventual decision to invest in it.
Given that you have a good understanding of the company you’ve invested in, I’d like you to ask yourself the following question:
“Is the drop in the company’s share price because of the company’s business fundamentals going awry, or is it because of a temporary one-off event?”
Covid-19 belongs to the latter, if you ask me.
3. What is Your Investing Timeframe You’ve Identified for Yourself before Making the Eventual Decision to Invest in the Company?
Personally, for all the companies currently in my long-term investment portfolio, I fully intend to stay invested in them for as long as their business fundamentals remain intact, or that there are no other better opportunities available (if there is, I’ll perform what is called “portfolio recycling”, where I sell off my shares in the company in place of the better one.)
So, what is your investing timeframe for the company you’re currently invested in?
For many, I’m pretty sure your investing timeframe is like mine – where you’d like to remain invested in the company so long as the business fundamentals are still intact.
If that is the case, then why are you panicking over a temporary one-off event, may I ask?
4. Have You Considered Averaging Down Your Initial Investment in the Company?
The fact that you’ve read to this point shows that you’re convinced that you should not be selling on a panic at this point in time, since what’s causing the share price of the company to drop is because of a temporary one-off event in Covid-19.
Now that the company you’ve invested in has become cheaper, you may want to explore the option of buying more shares of the company to average down your initial price – this will help give you an even better return over time, and also a better yield on your investment.
Allow me to explain this with a simple example – let’s say you’re invested in Company A that pays out a dividend of 5 cents/share, and you’re invested in the company at $1.00 – the yield is 5.0%. Currently, the share price of Company A is trading at $0.50, and if you were to buy in exactly the same amount of shares as you did initially, then your average investment price in Company A is now at $0.75, and based on this average price, the yield is now increased to 6.7% (taking into consideration that the dividend per share of 5 cents remains unchanged.)
Having said that, there’s no “one single price” you should average down. It all depends on your financial situation at a particular point in time, along with your investment strategy.
I hope this post will help calm some of your fears. Remember, you’re not the only one who’s sitting on a loss in your portfolio. Many of us here are also in the same situation as you at this point in time.
Have faith in your investment decisions, be patient, and I’m sure in no time, the dark clouds will pass and in a couple of years down the road when you look back at this incident that’s happening right now, you’d be glad that you did not succumb to fear and panic and “bail out.”
With that, I’ve come to the end of my post today, and I’d like to wish you all the best in your investing journey.
Thanks for reading.
Once again, this article is a guest post and was originally posted on ljunyuan‘s profile on InvestingNote.
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