Turbulent Market Investing

The stock market consists of all the publicly-traded companies in the country—this means that each publicly-traded company’s aggregate earnings, losses, challenges, and struggles are represented in the stock market. This last month, the stock market declined by almost 10% at one point. So, as investors, how are we to interpret that swing? And, how do we proceed in an environment like this? In 2005, I began working with my father in his property management company—we saw steady growth for several years. However, in the wake of the 2008 recession, our small property management practice was virtually wiped out as tenants defaulted and landlords lost their buildings to banks. We were left with two choices—adapt or fail. I tell you this story because every private and public company faces this same reality from time to time—adapt or fail. As investors, we must determine whether or not a market swing is an indication that the companies in the market are failing or adapting. If we look in the recent past, we can see that many big companies failed to adapt to changing environments and subsequently failed to exist—Sears, K-Mart, Blockbuster, Toys-R-Us, etc. In hind’s sight, it’s obvious to us that these companies were going to fail, but that might now have been so obvious during their decline. Many things can cause a market to fluctuate—economic data, wars, rumors, speculations, etc. One key to controlling your emotions and making sound investment decisions during market swings is to ponder over what is actually happening—is the market swing an indication that publicly-traded companies are failing to adapt? Or is there another reason for the market swing? When I invest in the stock market, I understand that what I’m really buying is a small part of a company—I buy their competitive advantage, market share, growing pains, struggles, profits, and losses. That’s why I regularly watch the financial health of the companies in the market—I need to know if the companies are facing temporary headwinds or failing to adapt. Based on what I see right now, I do not believe that the recent market swings indicate long-term weakness, but rather, I think they’re an indication of short-term headwinds. That being said, I do not believe that the volatility is over, and there could be more declines, but I’m not worried because I believe the underlying investments are strong. Remember, investing is fun when you don’t let your emotions get in the way! Happy investing! Ü