Don't buy into the panic!

Investment Analysis Clubs Saul’s Investing Discussions
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I remember my first investing lesson very clearly: If you invest in stocks, be prepared to watch one of them drop 75% in price without flinching. It will happen. Some of those may never recover but others will rebound and flourish. Very likely your whole portfolio will drop 50% or more at least once. If you can’t handle this, don’t invest in the stock market.

I am reminded of that lesson today as I watch one of my largest positions, INFN, is currently down 23.5%. Seeing this I have to ask myself: Is this an opportunity?

Yes, you read that right. My only concern is if this is an opportunity. Or am I happy to ride it out with my money where it is already? Concern over the company? Not much. Fear and Panic? None. Just consideration for how much money this news will make me.

Today’s drop in INFN came as no surprise to me. The tumultuous market has put investors in an emotional pressure cooker. Inside this emotional pressure cooker, all news is considered either very good or very bad. For a small-cap stock like Infinera, this is even worse because such stocks are volatile at the best of times, much less when under the strain of current market conditions. The situation is further compounded by tech stocks as people get excited over high-tech possibilities, but that excitement inside an emotional pressure cooker has a tendency to flip over to fear of equal magnitude. Hardly surprising that some of this fed back into Infinera’s customers leading to a lackluster quarter. No wonder Infinera fell so far today!

For myself, I’ll be watching INFN closely for awhile, watching the stock price as I dig for yet more details on the company. With so much fear running rampant today I smell opportunity.

Don’t give in to this emotional pressure cooker. Not for Infinera and not for any of your other stocks. That is a bad place to invest from, no matter if the news is good or bad. Step back, take a deep breath, and evaluate these companies rationally, forgetting about the panic of the market in general.

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I, for one, am Buying into the panic :slight_smile:

Long INFN

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I remember my first investing lesson very clearly: If you invest in stocks, be prepared to watch one of them drop 75% in price without flinching. It will happen. Some of those may never recover but others will rebound and flourish. Very likely your whole portfolio will drop 50% or more at least once. If you can’t handle this, don’t invest in the stock market.

As someone new to investing, your words of wisdom give me some peace of mind. It reminds me of a post I recently on Rule Breakers MF:“What Do the Best Stocks Have in Common? Misery.” http://newsletters.fool.com/1069/coverage/updates/2016/04/19….

A few years ago, billionaire investor Charlie Munger was asked how concerned he was that Berkshire Hathaway (NYSE: BRK-B) shares — which made up most of his net worth — dropped more than 50%. He quickly interrupted the interviewer and responded:

“Zero. This is the third time that Warren [Buffett] and I have seen our holdings in Berkshire Hathaway go down, top tick to bottom tick, by 50%. I think it’s in the nature of long-term shareholding that the normal vicissitudes in markets means that the long-term holder has the quoted value of his stocks go down by, say, 50%.”

“In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder, and you deserve the mediocre result you’re going to get compared to the people who can be more philosophical about these market fluctuations.”

The article looks into top 10 best performing stocks during the last 20 years (1995-2015): Monster, Biogen, Celgene, Gilead Sciences, and others, and notes how extremely volatile they all were.

Monster Beverage (NASDAQ: MNST) was the best-performing stock from 1995 to 2015. It increased 105,000% during that period, or enough to turn $10,000 into more than $10 million.

Yet this isn’t a retrospective about how you should wish you owned Monster stock. It’s almost the opposite.

The truth is that Monster has been a gut-wrenching nightmare to own over the last 20 years. It traded below its previous all-time high on 96% of days during that period. On average, its stock was 26% below its high of the previous two years. It suffered four separate drops of 50% or more. It lost more than two-thirds of its value twice, and more than three-quarters once.

Granted, this is looking at a very long period but it does shed some light on how a buy-and-hold (or modified buy-and-hold) philosophy can be a very, very bumpy ride along the way.

Cheers,
Mj

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I bought Apple, Gilead, Dow, Seagate, and Flextronics today. I always buy into the panic. :>)

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I am much newer to INFN than many of you, and it is my highest conviction holding. I remembered Warren Buffet’s quote: “Be fearful when others are greedy and greedy when others are fearful”. So I took a couple more nibbles, lowering my basis.

Monkey, please have a banana split on me to console you for all those lost bananas.

Jackson
Aspiring to Vulcan-ness in investing. Fascinating.

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I am reminded of that lesson today as I watch one of my largest positions, INFN, is currently down 23.5%. Seeing this I have to ask myself: Is this an opportunity?

Yes, you read that right. My only concern is if this is an opportunity. Or am I happy to ride it out with my money where it is already? Concern over the company? Not much. Fear and Panic? None. Just consideration for how much money this news will make me.

Let’s agree to disagree. It is dangerous to position your idea as a generic investment philosophy.

This will work if you are young and playing with relatively little money or if you have a diversified portfolio of 30+ stocks where no one position really counts for much.

If you have a ton of money in the market and heavily concentrated, you cannot be cavalier about a 23% one-day drop in a major holding. It calls for an honest re-evaluation of the thesis behind this one stock.

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