The fear of loss when investing in shares has been likened to the fear of death in surveys. Personally I find that to be an extraordinary reaction to an event which I consider to be the equivalent of a Black Friday sale.
Human psychology is interesting. When there is a sale people love to buy a bargain but when there is a stock market crash most people run for the hills. Most people sell when prices have fallen a lot and tend to buy when the market reaches an all time high.
This is the exact opposite approach you should take as an investor. In other words you should buy low and sell high instead of selling low and buying high.
As long as you have carried out thorough research into the company and you remain convinced about its future prospects you shouldn’t sell the stock. Far from it. If anything you should buy more of it and treat it as a Black Friday sale. Why wouldn’t you?
Obviously if you were wrong about your analysis of the company or there have been unanticipated changes such as a changing market or unexpected competition then you should sell the stock. NO question about it. However, that’s not what I am talking about here.
In most walks of life if you have done your research and the price falls significantly you are likely to buy that item. So why don’t you have the same attitude when it comes to buying shares?
You see price fluctuations come with the territory. It’s the price you pay to get great returns when you invest in great companies.
Amazon’s share price has suffered for falls of 50% or more over the last 25 years yet its share price has risen more than 3,000 %. Apart from Jeff Bezos I bet nobody has held Amazon shares for 25 years.
So in the future when a great stock you own falls in value significantly, treat it as a buying opportunity and buy more shares in it as long as the story hasn’t changed. You know it makes sense.*
Tony Byrne, Managing Director
If you want to learn more about this topic, please find the link here.
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*Risk warnings
The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.
