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How to Sleep Soundly When One of Your Big Stocks Has a Really Bad Day

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Hint: Focus on the business, not the stock.

Owning stocks is a great way to build wealth over the long term, but how do investors handle the inevitable ups and downs of the market? In this video clip from Motley Fool Live, recorded on Feb. 18, contributors Brian Feroldi, Brian Withers, and Matt Frankel, CFP, discuss how to sleep soundly even when your portfolio loses $10,000 over the course of a few days.

Matt Frankel: I see a question that I'd really like to address because it's a very important concept. I want Brian Feroldi especially to weigh in on this because I know specifically with some of the stocks you own you deal with this.

It says, "How do you guys go to sleep knowing that $10,000 you've invested worth has disappeared in three days?" I know Brian is more of a tech investor than I am, which is why I called him on that. But I would say that corrections like we're seeing right now, it's not even really a correction. When you see a few days of declines. It's really a natural part of investing.

Brian, how do you go to sleep when one of your big stocks has a really bad day?

Brian Feroldi: This.

Brian Withers: That's awesome.

Frankel: [laughs] He had it ready.

Feroldi: This. The business is the yellow line, the stock is the dashed line. I look at the business; I ignore the stock.

It's really hard to do because the media and every bit of information that's coming to you related to the stock is about one thing, the price. That's it. You don't get to see the day-to-day operations of the business, you don't get to see the day-to-day revenue, but you see the second-by-second changes in the stock price.

You have to train yourself as an investor to ignore that. Really hard to do. Ignore the stock price, focus on the business. ShockWave, I don't even know what it's doing right now. It might be down, it might be up, I don't know. But I just saw a new FDA approval, that sounds good, and 59% growth in a pandemic, that sounds good.

Now that you have to really pay up, super pay up to own Shockwave, but I am focused on the revenue growth, the margins, and the shrinking net loss. That's where I'm focused on. As an investor, you have to do that. You have to be willing to say, "The quoted value of my stocks went down today, but I still am holding these things for years."

Frankel: I don't want to necessarily go down this rabbit hole, but I know you own a fair amount of Tesla (TSLA 3.95%), which is a volatile stock. I can imagine that's caused some portfolio swings for you,

Feroldi: Yeah.

Frankel: Both positive and negative.

Feroldi: Mostly positive.

Frankel: There are some days when you say, "WOW, I wish I had had that last $100 of gains back, like today. [laughs]

Feroldi: Is it down $100 today?

Frankel: From its peak.

Feroldi: OK. [laughs]

Frankel: That's a big swing.

Feroldi: It is a big swing, but to me, every stock I own, I'm focused on, where is this company going to be five years from now? If I'm confident that the company is going to be bigger five years from now than it is today, I'm going to own it. If I'm not confident, I'm going to sell it and buy something that I'm confident is going to be.

Brian just did a great write-up on Twilio, 10xed its revenue in five years. It's visited a whole lot of places in between there, but the long-term path has been up. Super hard, but you have to train yourself to ignore day-to-day gyrations.

Frankel: One of these days we'll have a debate where you explain the bull case on Tesla to me because I'm lost. [laughs]

Feroldi: It's just to the left of the bull case on Bitcoin. [laughs]

Withers: I wanted to touch maybe comment on this, and I love that [this viewer] shared his or her fears and concerns with us. First of all, congratulations that your portfolio is big enough that you've lost $10,000 in the last couple of days. It's an odd way to think about it, but the other thing I would think I saw something else that you posted that you've been investing since March of last year.

You've seen, I imagine, an incredible run. If you look over that longer period of time, I think you've done very well in the last few days or only just [down] a little bit [in comparison]. The dollar amounts are scary, if you look at it.

I will echo Brian's comments about stay focused on the business. Continue to watch Fool Live, continue to ask questions and really understand [the business]. We get geeked out on companies and what they're doing and how they're serving customers, and in the end, that's going to help them grow over the long term.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
$684.83 (3.95%) $26.03
Twilio Inc. Stock Quote
Twilio Inc.
$98.66 (2.19%) $2.11
ShockWave Medical Stock Quote
ShockWave Medical
$170.95 (2.50%) $4.17
Bitcoin Stock Quote
$29,326.20 (-2.02%) $-603.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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