It’s a scary time in the stock market right now. Oil is plunging, China’s stock market crashes day after day and the rest of the world seems to be going down with it. Famed investor George Soros sees a crisis in the financial markets that echoes 2008 when of course, we had our last major crash.
The end is near and all of the financial analysts are starting to get on board. Every day investors like us are getting scared and many are probably thinking about getting out.
BREATH… the stock market can be scary, especially when the tides of optimism turn and everyone starts projecting worst case scenarios. The truth is, no one really knows what the market will do and often times the fear or success is already built in before we even know about it.
I’ve failed in trying to time the stock market before, so now I largely ignore it. In fact, I first started day trading early on:
“I was a senior in high school, sitting in my Physics class and watching my road to millions pave before me. My dad and I started a stock account with $3,000 and within four months took it up to $28,000. This was too easy.”
I was right, it was too easy and little did I know, we were in the peak of the dot com bubble and months later I’d see those tens of thousands disappear even faster.
So here I am, trying to ignore the fear, but even scarier, I continue to invest and buy more Apple stock when it’s getting even more negative press than the overall market! The benefits of diversification are very real and if you’re not real interested in stocks, you should continue to stay diversified and buy funds like Vanguard’s Total Stock Market Index Fund (VTSAX) – instead of individual stocks.
However, if you’re a little more familiar with stocks, let’s dig a little deeper so I can explain why I’m buying Apple even though it’s getting beat up. To start, from Warren Buffett:
“Diversification is protection against ignorance. It makes little sense if you know what you are doing”
Easy for Warren to say, he has one of the brightest minds (and teams) in the whole financial industry. However, “ignorance” sounds like a pretty harsh word, but in reality, it only means “lack of knowledge or information”. So yes, most of us are very ignorant on the stock market. But what if you had a few stocks you really followed and knew something about. Maybe you do have a chance then:
“And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times” – Charlie Munger
I’ve invested in Apple since 2013 when they had their last major beat down by the market. This article has a pretty good summary of the negative press, but everyone joined it and said Apple was done innovating and had reached “peak iPhone demand”. Their stock was in the dumps and the end was near.
That’s when I bought my first Apple stock at a split-adjusted price of $56 per share. Analysts said it would go even lower and many people agreed with them. Over the course of the next year, the stock price doubled.
You see, as much as we like to pretend the stock market is “efficient” or “rational”, it’s not. It feeds off of emotions and it’s incredibly good at getting you to “quit it” just before it makes the next major jump. The market is an incredible psychological test that isn’t for the faint of heart. The best bet is to remove your emotions, invest for the long term, and think of “Mr. Market” the same way one of the strongest minds ever in investing, Benjamin Graham, described:
“Instead of thinking the market was efficient, Graham treated it as a manic-depressive who comes by every day. And some days Mr. Market says, “I’ll sell you some of my interest for way less than you think it’s worth.” And other days, he comes by and says, “I’ll buy your interest at a prices that’s way higher than you think it’s worth.” And you get the option of deciding whether you want to buy more, sell part of what you already have, or do nothing at all.
To Graham, it was a blessing to be in business with a manic-depressive who gave you this series of options all the time.”
Right now, I think Mr. Market is depressed and willing to sell me stocks much cheaper than what they’re worth – especially Apple. You can find many analysts who disagree and many who agree, but based on my knowledge of their financial strength, their incredible reach around the world and their continued ability to make more money, I’m in. I traveled to Singapore, Bucharest and Bangalore last year and all three country’s residents either had iPhones everywhere or wanted to.
In the end, I’m not a financial adviser, I use a lot of anecdotal evidence, and I would encourage you not to make any investing decisions based on what I say. The best way to invest is to think long term and have a plan to regularly contribute. It’s funny, the last time I wrote a post about investing for the long term was back in August 2011 when the market was in the middle of a 15% correction… and in the next two years it jumped around 50% in value! I may be wrong this time and the market may crash, but if that happens I’ll continue investing just like I do now.