Do you remember the first time you entered a haunted house in a theme park, you didn't know what to expect so you were constantly in a fearful state?
But the more times you went to haunted houses, you were actually excited and looking forward to the "ghosts" in the haunted house.
That is exactly how the stock market is like.
In this blog post, I share three simple tips on being less afraid of the stock market.
1. Be Aware That There Will Be "Ghosts"
A haunted house won't be called a haunted house - if not for these "ghosts" scaring you.
These "scares" in the stock market are also known as stock market corrections or sometimes even crashes.
When we are investing, we need to acknowledge the fact that our portfolio will fall whenever there is a stock market correction/crash.
Many people are not willing to see their portfolio in red, and they tend to panic whenever there is a correction.
And that's kinda like, wanting to go through a haunted house - but expecting that there will be no scares.
However, let's look at the statistics according to "Here’s how long stock market corrections last and how bad they can get" - an article from CNBC:
There will always be corrections and bear markets in the future.
Just like how there will always be "ghosts" in the haunted house.
And here's the real question:
When you see a stock market correction, will you be excited or fearful?
You see, I once posted this question on a forum, using this image:
I asked this question, "If this were to happen - will this strike fear or excitement in you?"
And bear in mind - I posted this question back in 2019, when the stock market was in a strong bull run.
Many of the replies were, "Excited! Can't wait to buy more!"
However, when the stock market plunge really came in Mar 2020 due to the coronavirus.
Many people got fearful, and did not have the courage to buy more shares.
Why?
They were not mentally prepared that there will be "scares" in the stock market and got fearful.
Be greedy when others are fearful; and be fearful when others are greedy.
The lesson here?
Accept the fact there will be stock market corrections and bear markets.
But change your mindset towards these occasions.
Instead of being fearful, be excited whenever it happens because these are the greatest opportunities to take advantage of them.
2. You Won't Be In The Haunted House Forever
Many times, when I said that I am buying stocks during these corrections and bear market, I would always hear comments like this:
Are you sure, the stock market could fall further.
What if the stock doesn't recover?
Just keep the money aside, and wait for it to recover
Now let's address these fears one by one.
1. The stock market could fall further
Well, let's start with the 10 years chart of the S&P 500.
If I were to rewind back time to the periods circled in red - will you be willing to buy more shares?
Of course, you would.
Because the stock was going up in the long term.
However, many people can get trapped in the mindset of short-term thinking.
Here's my opinion of why the stock market will always go up in the long run:
- Inflation
The first reason is inflation - prices of product and services go up over the years.
If prices of product and services go up...the businesses who are selling these
products and services will also be making higher revenues - and earnings.
If a company earnings increases - what do you think will happen to the share price?
Yea, you are right.
The share price increase over time. - Advancing Medical Care and Increasing Population
It should comes as no surprise that our population size is growing over time.
Especially with advancing medical care - an average human lifespan is increasing over the years.
With an increasing population, there tend to be an increase in economic growth.
(Imagine if a business have only 20 customers compared to 200.) - Advancing Technology and Productivity
Humans are a unbelievable species.
The pace of our technology advancement led to increase in productivity.
With increased productivity - the overall economic growth will thrive over time.
So if your concern is that the stock market could fall further - I agree with you.
Anything could happen in the short term.
But in the long term, I will bet my chances that the stock market will go up.
2. What if the stock does not recover
This is another common fear that people face.
It is a valid concern. After all, there are many stocks that fell hard during a correction/bear market - and never recovered to its original price.
However, most of these stocks are what I call, "Poor quality stocks".
Most of these companies that never recovered, are those that have very poor financial numbers, such as negative earnings, cash flow and sometimes, even leveraged with a lot of debt.
You see, there is only one reason why share prices go up in the long run - increasing earnings.
If the earnings of a company increases, it is only natural for the share price of the company to increase as well.
The bottom line - invest only in quality companies.
(I will share more about investing in quality companies at the end of this blog post).
3. Keep your money until the stock market recover
This statement hardly make sense to me.
Imagine that it is Christmas Sale, and there was this really good deal on the AirPods.
It used to cost $250 and now it is only selling for $180.
And you tell yourself,
Oh my, these AirPods are selling so cheap during Christmas Sale? Let's only buy them after the Christmas sale is over.
Do you see what I mean - this statement hardly even make sense.
If there is a quality stock that is selling at a reasonable valuation, then you should just buy it and collect it.
"But Gin, what if the share price falls even further? Then you missed the opportunity to buy at an even better price"
Firstly, you can never time the market.
Secondly, if the share price does fall - it only means that the stock is now becoming even cheaper, and you get to buy even more shares at a lower price.
The reason why people are afraid of buying shares during a correction, is because they do not know what is a good price to pay for the stock.
This is otherwise, known as, valuation of the stock - which I will also cover at the end of this blog post.
So keep reading - and we are at Tip 3.
3. Go With A Friend To The Haunted House
This is probably the most important tip.
Go with your friends to the haunted house.
In other words, find like-minded people that is able to share their opinions when investing in the stock market.
However, when you are seeking opinions on investing, always ask someone who is actually "in the game".
There are many people out there who loves to give their opinions on the stock market, but in truth, they never invested a single cent in the stock market themselves.
So a rule that I have - is to always seek opinions from people who are practitioners.
For example, when I was buying a property - I don't seek advice from someone who only bought one property.
I seek advice from people who owns multiple properties.
And when I seek advice on building a business, I wouldn't listen to people who have never started a business before.
Instead, I seek advice from those who already made 7 figures in their business.
When it comes to investing - at the end of every newsletter email, I always tell my newsletter subscribers this:
"As always, if you have any questions, feel free to drop me an email."
And I will always do my best to answer all these questions to the best of my knowledge.
Because my mentors did the same for me too - and I want to pay it forward to help others as well.
What's Next?
However, as much as I want to reply all the emails that I received, I only have so much time.
Which is why, in order to help those who are just starting out, I created this free resource site, the Stock Investing Hub.
The Stock Investing Hub
Never get lost in your investments again.
In this resource hub, I outlined how I find quality companies, to valuating these companies and also to creating a portfolio of stocks.
And I will constantly be updating this resource page as I learn from other successful investors, in order to serve more people.
If you found this resource hub useful, then do share them with your friends and family as well.
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