Rough Patches? Become a Complete Fool
It's the nature of the business. Periodically you're going to run into some bad news. And sometimes bad news events are going to come together in a confluence of hardship, which knocks the knees out from even the finest of companies.
Kenneth Fisher talks about this in his book Super Stocks, in which he describes how even some of the best quality companies will periodically go into a tailspin creating rare buying opportunities. He calls such pullbacks "Glitches".
I always get a kick out of new investors who bitch that they bought a stock at $60 or whatever, and it's now down to $50... Does anyone really believe they're going to buy a stock and watch it go straight up? And if you are prepared to ride out some temporary turbulence, how long would it take you to get disgusted, or how low would the stock have to go?
Seen A Few Glitches
I've been investing for 25 years. I've seen some stocks go down 90% then come back. Yes, it's always possible that a stock goes right off the deep end, but with a well diversified, well-managed blue-chip with excellent management, and a triple-AAA credit rating this is highly unlikely.
Buffett tells us we should approach share ownership as we would ownership of a business. Would you sell a division of that company because it ran into some adversity? If so you aren't likely to have much of a company after any length of time, and an approach that involves always selling on any specific amount of a pullback is doomed to failure.
Top quality, best managed companies don't become poor companies because they run into some bad luck, or their sector, or their industry, or the stock market is down.
Peter Lynch says markets are going to pullback on average about 10% every two years, and that on average you're going to get a pullback of 25% or more. He says if you're not prepared for that you shouldn't be in the stock market.
JNJ is going to go for a loop eventually. And some of those loops are going to be humdingers, but if you've invested your time and energy in selecting some of the best you can find, why toss all that away?
If It Doubles Should I Sell?
Conversely, I've never really understood the idea that if a stock goes up 200% you should sell it or take some money off the table. If you've done your homework this is what you expected to happen. Why the surprise? Let your winners run. Stocks that go up 200% can go up 1000% and become 10-baggers, and you're never going to get a 10-bagger if you're always selling on a double.
I bought JNJ at $10 - ten years ago (Fe94). It's now worth five times that amount, and pays a healthy dividend, which increases nicely each year.
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