Netflix had a hit with the movie last year don’t look up† In the star-studded film, a comet hurtled toward Earth. Scientists predicted that the comet could destroy human civilization. But the White House ran a campaign to urge people to “don’t look up” and not worry about the comet.
The aim of the film was to emphasize the absurdity of not solving big problems. However, sometimes ignorance really is a blessing. I think that’s especially true for investors. There are two words that can make you money when your stocks fall: don’t look.
Don’t put that emotion in second place
My advice is not to look at how your stocks are performing on a daily basis. Don’t even watch weekly. 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 falling. Why? The more you watch your stocks when they fall, the more tempted you will be to sell them.
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But selling your stock during a market downturn is usually the worst move you can make. Even if you somehow managed to time the market right on the way down, there’s a big risk that you won’t time it as well on your return.
I am not alone in this view. The late Jack Bogle, one of the greatest investors of all time, once said, “Your emotions will completely defeat you” if you try to sell to avoid losses and buy stocks later.
In a 2016 interview with CNBC, Warren Buffett stated during a period of high market volatility, “I would say [investors]don’t pay close attention to the market.” The multi-billionaire is much more likely to buy stocks during a recession than to sell them. Buffett, for example, has been busier buying stocks for Berkshire Hathaway‘s portfolio in recent months than it has been in a long time.
To be precise, Buffett bought companies for Berkshire. In his most recent letter to Berkshire shareholders, he discussed the approach he and his longtime business partner Charlie Munger are taking:
“In particular, please note that we own stocks based on our expectations
about their long-term business performance and not because we see them as vehicles for timely market movements. That point is crucial: Charlie and I are not stock pickers; we are business pickers.”
If you buy companies with a long-term perspective, as Buffett does, you don’t care how their stock prices fluctuate from day to day. And if you don’t care about these fluctuations, there’s just no reason to watch.
something that you should look at
I know it’s hard not to watch your stocks perform. It takes discipline to hold back. However, here’s something you should looking at — maybe when you’re tempted to look at your stocks.
The S&P 500 has long served as a good barometer for the general stock market. Of course, there have been steep pullbacks in the past. Some were much worse than what we are experiencing now. However, investors who bought and held for the long term always won. All the time.
In retrospect, every time the S&P 500 fell presented a great long-term buying opportunity. Buffett knows this because he studies history. That’s why he’s now buying shares.
If we zoomed in on the period in which the market fell on the chart above, the picture would look a lot scarier. But if you want to make money, don’t look at the bleak short-term scenario. Instead, look at the big picture.
Investors who take this approach will not be hit by a life-ending comet, as depicted in don’t look up† However, you can generate astronomical returns in the long run.
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Keith Speights has holdings in Berkshire Hathaway (B shares). The Motley Fool holds positions in and recommends Berkshire Hathaway (B shares) and Netflix. The Motley Fool recommends the following options: long January 2023 Berkshire Hathaway calls (B-shares), short January 2023 Berkshire Hathaway (B-shares) and short January 2023 $265 calls on Berkshire Hathaway (B-shares). The Motley Fool has a disclosure policy.