netflix had a hit last year with the movie Don’t look up. In the star-studded movie, a comet was hurtling towards Earth. Scientists predicted that the comet could wipe out human civilization. But the White House has mounted a campaign urging people to “not look up” and not worry about the comet.
The purpose of the film was to highlight the absurdity of not solving major problems. Sometimes, however, ignorance really is bliss. I think this is especially true for investors. There are two words that can make you money when your stocks are crashing: don’t look.
Don’t second this emotion
My advice is not to look at the performance of your stocks on a daily basis. Don’t even watch every week. I think reviewing your stocks no more than once a month is the best thing you can do to make money when your stocks are crashing. Why? The more you watch your stocks when they go down, the more you will be tempted to sell them.
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But selling your stocks during a market downturn is usually the worst decision you can make. Even if you managed to time the market well on the downside, there is a big risk that you won’t time it as well on the re-entry.
I am not alone in this opinion. The late Jack Bogle, one of the greatest investors of all time, once said, “your emotions will totally defeat you” if you try to sell to avoid losses and buy back shares later.
In a 2016 interview with CNBC, Warren Buffett said during a period of high market volatility, “I would say [investors]don’t watch the market closely. “The multi-billionaire is much more likely to buy stocks in a downturn than to sell them. For example, Buffett has been busier buying stocks during Berkshire Hathawayportfolio in recent months than it has been in a long time.
Specifically, Buffett bought companies for Berkshire. In his latest letter to Berkshire shareholders, he discussed the approach he and his longtime business partner, Charlie Munger, are taking:
“Please note in particular that we have stocks according to our expectations
based on their long-term business performance and not because we view them as vectors of timely market developments. This point is crucial: Charlie and I are do not stock pickers; we are business selectors.”
If you buy companies with a long-term perspective, like Buffett does, you won’t worry about their stock price fluctuating from day to day. And if you don’t care about those fluctuations, there’s simply no point in looking.
something that you should Watch
I know it’s hard to avoid looking at the performance of your stocks. It takes discipline to hold back. However, here is something you should watch – maybe whenever you are tempted to watch your actions.
the S&P500 has long served as a good barometer for the overall stock market. Of course, there have been steep setbacks in the past. Some of them were much worse than what we are experiencing now. However, investors who bought and held for the long term always won. Still.
In retrospect, each drop in the S&P 500 presented an excellent long-term buying opportunity. Buffett knows this because he is a history major. That’s why he’s buying stocks right now.
If we zoomed in on the chart above to the period when the market was down, the picture would be much scarier. But if you want to make money, don’t look at the grim short-term scenario. Instead, look at the big picture.
Investors who take this approach will not be hit by a deadly comet, as shown Don’t look up. However, you could generate astronomical returns in the long run.
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Keith Speights holds positions in Berkshire Hathaway (B shares). The Motley Fool holds positions and recommends Berkshire Hathaway (B shares) and Netflix. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.