Let the Market Fall

Well, it’s been a while. But, the recent market action has driven me to write something.

Since reaching record highs in the first few trading days of the year, the S&P has basically plummeted nearly 10% in just the last few weeks.

Looks pretty ugly, doesn’t it?

The NASDAQ is in worse shape, though. It did actually enter correction territory, now off 13% from its all-time high in November.

Tech has been an especially difficult part of the market to trade, with some tech stocks dropping over 50% in just the last few months. Here’s ARKK, which really represents how staggering this drop has been:

A lot of people are asking whether growth stocks are out for good, considering the recent inflation and the Fed likely raising rates later this year.

My opinion is no, of course not.

In fact, when someone in a Facebook group I’m in recently predicted doom and gloom for the market, my response was, “Good. The more it drops, the more I can buy.”

And that’s pretty much exactly my outlook.

Do you remember when the market fell in March, 2020?

If you were involved in stocks at the time, how could you possibly forget? It was the most rapid fall I had ever personally seen, and many stocks dropped 50%+ in just a few weeks.

Yet, look at the recovery in just the S&P alone, despite an over 30% drop:

I still kick myself for not jumping in more than I did near the bottom. Anyone who invested in basically any stock in March 2020 made a massive profit in a very short period of time.

Even for just the S&P alone, if you had invested near the bottom in March, 2020, you would have made well over 60% by the end of the year, and more since then of course.

Of course, that doesn’t mean this will repeat. But I also think the doom and gloom is overblown.

Good companies don’t stop being good companies just because their stock price is temporarily falling.

Now, of course, some of these were massively overvalued, just as they were in early 2020. I sold my Zoom shares long ago because there was no way I thought it was worth over $300.

But now, ZM is under $150 and I think maybe that’s a tad oversold, so I recently bought back in.

But I really think there’s nothing truer than Warren Buffett’s advice to be “fearful when others are greedy, and greedy when others are fearful.”

When everyone is buying up stocks left and right, regardless of the real value of the underlying company, it’s probably time to get a bit more cautious.

But when everyone is selling, predicting years of no growth, it’s time to think about finding some good stocks to buy again.

And really, I’m primarily a long-term investor, as I believe anyone should be. It doesn’t mean I won’t take advantage of a nice short-term profit, but by and large, I’m looking at a timeframe of at least a year when I’m making a trade, potentially much longer.

The more the market falls, the cheaper stocks are, the more you can buy with the same capital.

And there’s one near universal constant: good companies will see their stocks rise over time. And even more certain: the market as a whole will always go up, given enough time.

Corrections are a perfectly normal part of the process. The market overheats, and gets sold off until it’s at a more reasonable level. Then people start buying again. It’s how it goes, year after year.

So yeah, let the market fall. Because, when it inevitably goes up again, I’ll be in a much better position to make that much more of a profit.

A Word on Asset Allocation

Many people suffer during these corrections because they have unreasonable asset allocations. They put way too much into one sector of the market, like tech.

Growth stocks look nice when the market is rising, because they tend to move faster than anything else. But they also drop faster when the selling starts.

I personally have about 30% invested into growth. I have another 30% in REITs (real-estate), and the remaining 40% in value stocks that pay a good dividend.

Boring, I know. I’m only 33 so I could probably get away with a higher allocation in growth. But this is more stable and still grows quickly. And when the market is selling off, I still get a steady dividend, which I can use to reinvest as stocks continue to fall. So, for me, it’s the best of both worlds.

Also, it’s not so upsetting when just one part of my portfolio is dropping in value. Of course most things are falling right now, but growth has fallen far faster. Whereas my high growth stocks have fallen about 20% in the last 3 months, my value stocks have actually risen 4% in the same time. Still hurts, of course, but not as much.

Final Words

No one knows where the market will go in the short-term. I personally believe there’s not much more downside, but I could be totally wrong.

But regardless of what the market does, I’m fine with it. If it drops, buy more. If it goes up, still buy more and enjoy the profit. Just keep dollar-cost-averaging week-after-week, or month-after-month. Myself, I like to buy what I can every Monday, and sometimes a bit more throughout the week if any opportunities present themselves. It’s a good habit to get into.

If you do that, and don’t worry about the drops, in a year or two you’ll likely be shocked at how your portfolio has grown. Slow and steady, as they say.