2 Words That Can Make You Money When Your Stocks Sink

Adhering to this advice might not be easy. But it could make you wealthier over the long term. Netflix had a hit last year with the movie Don’t Look Up. In the star-studded flick, a comet was hurtling toward Earth. Scientists predicted the comet could wipe out human civilization. But the White House organized a campaign urging people to “don’t look up” and not worry about the comet. The movie’s point was to highlight the absurdity of failing to deal with major problems. Sometimes, though, ignorance truly is bliss. I think that’s especially true for investors. There are two words that can make you money when your stocks are sinking: Don’t look.

Don’t second that emotion

My advice is to not look at how your stocks are performing on a daily basis. Don’t even look 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 sinking. Why? The more you look at your stocks when they’re falling, the more tempted you’ll be to sell them. But selling your stocks during a market downturn is usually the worst move you can make. Even if you somehow managed to time the market well on the way down, there’s a big risk that you won’t time it so well on reentry. I’m not alone in this view. The late Jack Bogle, one of the greatest investors of all time, once said, “your emotions will defeat you totally” if you try to sell to avoid losses and buy stocks again later. In a 2016 interview with CNBC, Warren Buffett stated during a period of high market volatility: “I would tell [investors], don’t watch the market closely.” The multibillionaire is a lot more likely to buy stocks during downturns than he is to sell them. As a case in point, Buffett has been busier buying stocks for Berkshire Hathaway‘s portfolio in recent months than he’s been in a long time. More accurately, Buffett has been buying businesses for Berkshire. In his most recent letter to Berkshire shareholders, he discussed the approach that he and his longtime business partner Charlie Munger take: “Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.” If you’re buying businesses with a long-term perspective, as Buffett does, you won’t care how their stock prices fluctuate from day to day. And if you don’t care about these fluctuations, there’s simply no reason to look.

Something you should look at

I know it’s hard to avoid looking at how your stocks are performing. It takes discipline to hold back. However, here’s something that you should look at — perhaps whenever you’re tempted to look at your stocks.
^SPX Chart
^SPX DATA BY YCHARTS. The S&P 500 has long served as a good barometer for the overall stock market. Sure, there have been steep pullbacks in the past. Some of them were much worse than what we’re experiencing now. However, investors who bought and held for the long term always won. Always. In retrospect, each time the S&P 500 fell presented a great buying opportunity over the long run. Buffett knows this because he’s a student of history. That’s why he’s buying stocks right now. If we zoomed in on the above chart to the period when the market was falling, the picture would look a lot scarier. But if you want to make money, don’t look at the gloomy short-term scenario. Instead, look at the big picture. Investors who take this approach won’t be hit by a life-ending comet, as depicted in Don’t Look Up. You just might generate astronomical returns over the long term, though.

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