Why do we sell stocks when they “crash”?


If we love an asset at $60 per unit, we should really Love it at $40 per unit.  Obviously, we would buy many more at $40 if we have the cash.  Except we don’t.  Our fearful nature immediately triggers the thought: “What if it goes down to nothing”? 

  • Can we really believe that a top-quality asset like MacDonald’s (MCD) is going to go completely to zero?  The answer is yes!  We are not taught in school that well-run companies with huge amounts of cash, real estate, growing sales, etc. is about as safe as it gets, (for not going to zero.)
  • We need a more grounded image of what we actually get when we purchase a share of stock.  In the case of MacDonald’s, you gain future growth of earnings and dividends if you stay in.  You also own all the real estate they own.  You own the name brand, the sales pipeline, and the consistent cash flows, the management expertise and the efforts of 375,000 of employees. 
  • You tag right along with the Billionaire CEOs when you buy a share of stock.  Jeff Bezos pays the same exact price as you and I when he buys Amazon stock.  These shares are in every sense “real assets” as sure as real estate is.

But generally, it’s an easier road for real-estate investors. Wealthy or otherwise, they seem to behave with more logic than those who focus on markets. For example, if you own a rental condo, and the one across the hall goes on sale for 30 per cent less than you think it’s worth, you wouldn’t automatically put yours on the market and sell, too, because you think there is a problem. Indeed, you may actually buy the other condo.

We must take the same view with stocks.  If you are knowledgeable and understand the potential for the shares, you would certainly buy more.  Shares I have bought for clients and myself tend to be added to on “dips”.  You should feel good that the “dip” is just a blip.  For instance, Boeing just went down significantly from the crash of the new 737.  Does anyone think that will be a problem in 10 years?  So why sell?  So why not buy more?

Gaining the knowledge is not that hard for those that are really interested in stocks.  Most people are too busy, just as I am too busy to try to figure out how to fix my landscaping irrigation system.   I had a guy out to help me with that the other day, and he kept asking me questions like, “what kind of emitters do you have on those lines”?  I looked at him like he was from Jupiter.  If I knew anything he wouldn’t be standing there!  He did a great job by the way.

And I would love to do a great job for a small group of new clients at this stage of my career.  These new clients will work directly with me but have the considerable support and resources of the Verdi Wealth Management team.   

I will not take more than 25 households so I can have focus my attention on each account.  Clients will have access to me most of the time.   I will take calls and answer questions myself.  No robots! I will have time for ongoing coaching and keeping clients in the right mindset to prosper.

I am not too concerned about each client having a huge amount of money.  I am more concerned about working with reasonable, intelligent, and conservative people who believe in free markets as the creator of our freedom and prosperity and not government.  If you or someone you know wants to know more, please contact me directly at 208-559-6250.

See you soon!

Craig

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