A stock market correction typically means a pullback in value of 10% to 20%. Looking at major indices like the S&P 500 and the Dow Jones Industrial Average, there's presently no correction to speak of. Both are within 3% of all-time highs as of this writing. However, the Nasdaq Composite index is down 8% from its high. And many of the individual stocks that make up this tech-heavy index are down by far greater percentages than this.
The technology sector started spiraling downward in February but I've been a buyer of stocks during this time. Two stocks I've bought are TS Innovation Acquisitions Corp. (TSIA), which is merging with Latch, and Airbnb (ABNB 2.48%). My goal isn't necessarily to convince you to buy these stocks as well. Rather, I want to explain why I'm buying stocks at all during such turbulent times.
1. TS Innovation Acquisition: Staying the course
My personal investment philosophy has two steadfast principles. First, I budget a percentage of my income toward investing. Second, I buy stocks at least once a month.
Regarding the first principle, I budget money toward investing because, over the past century, the stock market has been one of the greatest wealth-creation tools there is. Furthermore, I have around 30 years before I'm retirement age. That's plenty of time to allow the stock market's power to work for me.
Regarding the second principle, I buy stocks regularly because I don't believe anyone (myself included) can consistently predict market tops and bottoms. However, the stock market went up in 40 of the past 50 years -- 80% of the time. Imagine having those odds at a casino! Wouldn't you always bet on the thing with an 80% chance of success? Sure, you'd be wrong 20% of the time. But you'd be a net winner in the long run.
I can't know the perfect moment to go "all in" with my investments. Therefore, to me, it's logical to put the historical odds in my favor by continually betting on the upside with stocks.
With this context, please understand I wasn't trying to catch the bottom when I bought shares of Latch a couple of months ago. Good thing too, because I would have failed -- Latch is down 23% since I bought. Rather, as part of my regularly scheduled investing, I picked up shares believing they could make me money over the long term if the thesis plays out.
Latch creates smart devices and operating software for rental properties. The company has incredible customer retention and signs six-year contracts, giving it terrific revenue visibility. Latch claims that one in 10 new apartment buildings include Latch products from the start, creating a growing and under-the-radar source of future cash flows.
Furthermore, Tishman Speyer is the special purpose acquisition company (SPAC) taking Latch public, a heavyweight real estate company with global reach that could further catalyze Latch's adoption worldwide. Given its revenue visibility, management believes it could be generating $250 million in annual free cash flow in 2025, remarkable value from today if it happens.
To summarize, I bought shares of Latch during the tech sell-off. But this has more to do with my regular investing schedule than anything. If the market soars tomorrow, I'll still be looking for something to buy.
2. Airbnb: Dollar-cost averaging
As a younger, more unproven company, Latch is a smaller position in my diversified portfolio. And I intend to keep this allocation relatively small until it proves itself more over time. But with a company like short-term rental platform Airbnb, I'm willing to build a much larger stake. I already owned some shares going into the tech sell-off with the intention of buying more over time -- this is called dollar-cost averaging.
The travel industry is changing in favor of the short-term rental spaces offered on Airbnb's platform. I bought Airbnb stock because it already enjoys unparalleled brand-name recognition worldwide -- most traffic comes in organically (without ads). This makes Airbnb's platform the obvious choice for many users and hosts. I believe this will allow the company to capture a lot of the upside from shifting consumer travel preferences and will also give it longevity.
I didn't buy my entire stake in Airbnb upfront, but this wasn't because I thought Airbnb was about to fall. After all, going back to what's been said, I don't know if right now is a short-term high or low for the stock. But by spreading my investment out over a series of months, I can get a good average price.
In this case, it worked out in my favor. I've used dollar-cost averaging as Airbnb stock price has fallen almost 40% from its all-time high, so my cost basis is lower than if I had purchased it all upfront.
The final takeaway here is don't let the tech sell-off scare you out of the market -- things could get better soon. But there's no need to bet the farm today -- things could still go lower. Simply stay optimistic, intentional, and patient in your investing, buying stock in great companies and holding it for the long haul. History shows that's a good approach.