In my seminars I make the joke that you don’t ring your valuer every 5 minutes to ask them the price of your house to illustrate how silly it is to monitor your share investments on such a regular basis and yet when ever a share goes down by more than about a cent our switchboard lights up with panicky clients wanting to know what to do.
Unless there is a fundamental change in the management or strategy of the company you do nothing. You might just buy!
Look, the markets do what they do, but good companies will always recover from temporary dips in their share price.
In fact, this is why Fundamental Analysis has the name it does – because it is based on the fundamentals of the company, not the rise and fall of the markets.
Warren Buffett makes a simply analogy – if you go into the supermarket today and find milk on special you don’t walk out not buying any saying, “I’ll wait until next week when it is full price.” It’s the same with good companies. If the price falls through some machination of the market then why panic?
Lately there have been a few profit downgrades which have resulted in companies being sold off, but the question is exactly the same – is this an early indication of a fundamental problem or is the company still sound?
The market is tending to over react at the moment because it is jittery. Case in point was one of my “little favourites”. A small reduction in the anticipated profits (which by the way, even after the announcement were good) resulted in the share price dropping almost 20% – ludicrous. I was asked what to do and my response was, “buy”. A great company “on special”.
I really think the market has ridiculous expectations of companies these days and while continuous reporting is critical to the safe and intelligent running of the markets it does produce some interesting results.
Yes, the share price of some companies has fallen not to recover in the short term but this is why diversification is important.
A number of the shares I select for my portfolios fall. But the overall portfolio keeps going up.
In the end our minimum investment window for buying share should be 3 to 5 years – so why be worried by what happens to the share price on a daily basis? Psychologically you are only encourage your fear and greed to kick in if you carry out this behaviour.