3 things the smartest investors do when the market is crazy
Due to the high level of inflation and the turmoil of the global economy, this does not seem to be the right time to invest in stocks. After all, the market has already lost about 14% of its value this year, and its near future remains extremely uncertain.
But if there’s one thing the smartest investors know, it’s that market craziness isn’t an excuse to sit on the sidelines. For them, it is a call to action calculated to support the value of their portfolio over the long term. Specifically, there are three things they are doing now and in the coming months to ensure that they come out on top.
1. Be Cool Even When Favorites Are Few
Perhaps the most important thing the smartest investors don’t often do is put their wits about them when positions aren’t going their way. It’s easy to say that people shouldn’t panic, but, when you’re faced with your hard earned money being defrauded, it’s also quite easy. And once that happens, they start thinking about selling their shares, even when it is at a loss, and even when the loss can go the way of the dodo with enough patience.
To make matters worse, when investors sell their shares at a loss when the market is volatile, it often happens without considering whether their investment thesis is still valid, which is also generally a bad practice.
For example, Intuitive Surgical (ISRG -0.16%) and Costco Wholesale (COST 0.95%) have both declined so far this year, with Intuitive down 36% and Costco down 5%. But both companies are still profitable, and have increased their trailing-12-month revenue by more than 40% over the past three years.
More importantly, neither has anything fundamentally changed about their business model nor has their operations been directly affected by the ongoing volatility in the market. Intuitive Surgical is still making robotic surgical systems, and Costco is still selling bulk consumer goods and groceries out of its warehouses. The same forces that drove their growth prior to the bear market are still in play today, and smart investors know there’s a good chance the pair will recover over time by reporting consistently favorable earnings like never before.
2. Build on high-convict positions
Keeping this theme in mind, another thing that the best investors do is to buy more shares of their favorite companies even when the future is uncertain. After all, if your investment thesis still holds up, why not take advantage of dips and add to your position?
Take Intuitive Surgical, for example. At the core of the company’s appeal to investors is that for each new da Vinci surgical suite that it installs in operating rooms around the world, it must earn revenue from the sale of maintenance contracts, training packages, software, spare parts, and more. One year long stream is available. Updated surgical equipment for robots. And while its customers use its surgical suite for more procedures, they need more services and goods, so it also benefits from growth in health care systems.
As a result of that razor-and-blade business model, approximately 75% of the business’s revenue in 2021 was from recurring sources, a ratio that has been gradually increasing over time.
Does the market volatility affect any element of the intuitive narrative? No. So, while the smartest investors will probably check whether any other important factors are destroying their investment thesis for the stock before buying more, they won’t hesitate to add their position here ultimately.
3. Bargain or Buy Potential Future Winners from Watch List Stocks
Most skilled investors maintain a watch list of the stocks they wish to buy. Then, during volatile periods in the market, they look for opportunities to initiate new positions in the stocks they are watching, either for the right price or because of a positive change in economic events. At the moment, inflation is an economic phenomenon, so one thing that smart investors may be on the lookout for are businesses that stand to benefit from it.
Costco fits that bill quite well. Since the reputation of the wholesaler rests on providing the lowest-cost goods to its members, if consumers are feeling the pain of inflation, they are unlikely to do much better than buy its products. keep. Also, if other retailers raise prices faster than Costco, it’s likely it will increase at a faster clip than usual.
According to sales results for June of this year, Costco’s revenue was up 16.9% in 2021 compared to the same period, so that trend is indeed happening. In other words, if the stock was on a smart investor’s watch list, they would be willing to buy some shares at a slightly higher price than usual if they fell victim to the bargain. And over the long term, this will help them garner stronger returns, as opposed to investors who were willing to move to an attractive stock at a better price than they were last year.