Generate Value in Market Downturns
In this latest post, Joshua Brown explains why you should think longterm and resist well intentioned, yet shortsighted, actions to shield yourself from volatility and losses.
He puts it this way... "If you are under the age of 50 years old and selling stocks now, having ridden the market down 25% from last Thanksgiving, well, I hope you have a damn good reason for doing so. Besides the immediate relief you might feel for getting off the roller coaster. Because from where I sit, everything about the current market environment has now gotten better for investors than the environment one year ago today."
Value is created from the opportunity that is mispriced securities. Right now, as Brown says, "We’re trading at a 15x forward PE ratio (below the five year average of 18)." In September 2021, stocks were at 24 times earnings.
He finalizes, "...market environments like this one are where all of the value creation resides. With today’s lower prices and falling valuations, we are laying the foundation for tomorrow’s success. It may not feel that way in the moment, but that’s why not everyone gets to succeed."
It's up to you to decide after doing your own research. Is the company's current stock price justified? Has there been irrational selling? Have the fundamentals of the business changed? With extreme decrease/increases in price, comes the responsibility to dig for the truth again.