Don't wait for one to happen to buy shares in good companies.
September 23, 2021
Stock market crashes happen but a big one-day drop where the Dow and Nasdaq post losses that are scary to look at as investors does not mean we’re at the beginning of a crash. In fact, big moves down followed by big moves up has been somewhat the norm during the pandemic. We’ve had a number of times where a collection of bad news, or sometimes just a hint of it, has caused stock indexes to lose a percentage point or two, but recent experience has shown that recovery comes very quickly.
That’s what happened during the market week that began on Sept. 20. Stocks were down Monday, rallied early Tuesday, then closed down for the day. That was followed by big gains on Wednesday, and as of 2 p.m. Thursday, even bigger gains.
It’s exhausting and it doesn’t always have a clear explanation. Yes, you can certainly point at some negative news that sent the market down on Monday and Tuesday, but nothing really changed later in the week before markets climbed to new heights.
This volatile week led to Steve Symington joining Dan Kline on the Sept. 22 “7investing Now” to discuss buying a dip that had already gone away by the time the show aired. So, instead, they discussed the general concept of buying during a market downturn and why you should not wait for one to buy shares of good companies.
A full transcript follows the video.
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Dan Kline: But when the day closed yesterday, the market was down a few percentage points. Things look pretty ugly. And I was pretty confident. And I’ve written about this for members. I believe Steve edited it. Where it basically said we’ve had a lot of these during the pandemic where there’s like some negative news out there. And it sends the market down 800 points but then by like Friday, we’re at a new all-time high.
We’re not guaranteeing that will happen. There are market crashes. But it is it’s worth pointing out that markets don’t crash based on what might happen markets crash on what actually happens. Now markets fall on news and rumors and innuendos and what could happen. So right now, nothing has systematically changed. And that is really important to point out. But let’s get into some common things people say and get Steve’s reaction to them. So buy the dip. But don’t wait for the dip. Steve, your thoughts here.
Steve Symington 2:58 It just feels like you’re overthinking things like buy the dip, don’t wait for the dip. I just continuously add to my portfolio as cash allows. And in businesses that I look for, I don’t I don’t think too hard about buying the dip. That’s just my my sensory thing.
Dan Kline 3:16 So I don’t either I maintain a here’s what I’m going to buy lists. But here’s what I will do when you see a day like yesterday, where Disney goes down, I don’t remember the number but like 6 or 7% it was down a bunch. If Disney was something I was going to buy next week, I might loan myself the money to buy Disney at an advantageous point. Now the problem is that the money is not already sitting in your investing account, you probably missed that window anyway, the way stocks have been behaving. Or if money is sitting there. Maybe I buy the third thing on my list before I buy the first thing on my list, because I can get an advantageous entry point.
But I don’t change what I’m going to buy. Unless you see a really, really big fall. There’s something I love and it drops by 40% I’m gonna find money to buy it. But a lot of people have looked at stocks like you know, your high flying tech stocks and really successful stocks that I’m gonna buy it when it hits this price point. And then it never hits that price point and you realize how much you’ve lost. Let’s move on to point number two, this is gonna be a fast moving show. And again, we would love for you to chime in tell us how you feel about the market. Tell us Did you buy anything to do sell anything? What are you doing? Steve? Never worry about buying at exactly the right time.
Steve Symington 4:25 Yeah, I wholeheartedly agree there. That’s just something that I guess Never say never. But I just you know, I try not to time bottoms and time selling at the top, buy low, sell high. It’s like I just buy and then buy some more, you know, shares with great businesses over time that I think are attractively valued relative to their long term potential. So I mean, whether I buy this week or next month – often is of little consequence, but you know, we will find attractive opportunities every single month. And step in when we think they’re attracted with those valuations. So exact right time – timing the market is so hard.
Dan Kline 5:08 Steve, is this a case where you kind of have to separate good companies from the overall market? Meaning that really, unless something has a crazy run up, that you’re identifying good companies, and you’re concerned with where they’re gonna go in 10 years, not with you where they’re gonna go based on like, what the CEO says at some conference nobody’s ever heard of, which is not the case of the conference Disney was at, thatwas actually a big conference.
Steve Symington 5:30 Yeah, yeah. And that’s that that’s exactly right. I mean, it’s these are things that we’re thinking about long term. And, you know, I’m generally buying a stock with the intention of holding on to it for years. And usually, the near term swings, I try to keep in mind, you know, even if the stock falls in the couple weeks after I buy it, generally not too concerned unless there’s some thesis altering incident, that actually happens to trigger me wanting to sell. And that’s something that we’re actually writing about this weekend on our 7investing research portal, if you take a peek at those, but unless there’s some thesis altering information, that fundamentally changes case for owning that stock, I’m relatively unconcerned.
Dan Kline 6:11 And the cool thing about those articles you just mentioned, too, is there there are public-facing articles, or any of you watching today can read those articles. And it’s basically us talking about selling. And then there is a members-only part of those articles that gets into specific thoughts on specific companies, and what we’re thinking the red flags are. So there is a benefit to not being a member, but it is much better to be a member of 7investing. Steve, when shares in a company you really like fall? Do you view that as a buying opportunity? Or do you tune that out as well?
Steve Symington 6:45 You know, it really depends on the reason, you know, a lot of times you see shares of companies falling for no particular reason, or maybe you know, in sympathy with some of its peers or something. And if I see a pretty steep drop in a company that I liked it even higher valuation, sure, I’ll use that as a buying opportunity. But you know, that’s also not to say we shouldn’t also keep a close eye on our winners and adding to them, you know, too often, I think people focus too much on adding to beaten-down stocks rather than adding to their existing winners, thinking the winners just won’t run higher. And that ends up being kind of the opposite is true. So add to your winners is kind of an underrated piece of investing advice.
Dan Kline 7:28 And, Steve, you talked about an investing thesis. The thesis is sort of the long-range roadmap of why we own a company. So let’s pretend you own Tesla, because that’s a stock I don’t own. So I’m putting it out there as an example. And you see the U.S. heading into an economic downturn, and you think that’s going to be bad for Tesla for a couple of years. Economic downturns have not proven to be bad for Tesla, but let’s pretend you thought that was going to be. The reality is your thesis is only busted. If you truly believe the economic downturn is going to be for 20 years. That it’s that it’s not going to be something we recover from. So these aren’t easy decisions to make, like, you know, so we’ve talked a little bit about, you know, affordable luxuries like Starbucks or going out to dinner at a modest restaurant, let’s say, a BJs, or Chili’s, those are both publicly traded companies.
Well, sure, if your personal income takes a downturn, you might go to Chipolte or something a little bit less nice. But that’s not a long-term change. That’s sort of you might also be someone who would have gone to Ruth’s Chris steakhouse, and instead, you’re gonna go to BJ’s. So like, it’s really, it’s really one of those things where we don’t often know how some of those things are going to impact the economy. I have one more here, Steve, we’re moving through this segment quickly. Because, again, our goal when we wrote this segment, was to kind of hold hands, you know, to sort of say, hey, the markets down, but we’re in it for the long term, we still believe in things. And of course, the market has recovered, though, as we talked about before the show, I would not be shocked if the market somehow ended up down today, because it’s been that type of week where things just go very quickly on very little news. But Steve, is it okay to buy at an all-time high?
Steve Symington 9:06 Absolutely. And that’s something that I just kind of alluded to, I tend to jump the gun because my train of thought leads to these other questions, which is funny. But yeah, most definitely, that’s something that for a lot of businesses, winners tend to keep on winning. And the strong gets stronger and their share prices continue to rise. And too often people trim their winners when they should be really looking at the companies that are underperforming and determining whether to trim them instead. And usually trimming your your winners ends up being something that costs you market-beating returns over the long term.
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