Should You Change Your Investment Thesis in a Volatile Market? Advice From 3 Investors

With the increased market volatility, record-high inflation, concerns about another correction or crash, and the ongoing pandemic, it might be tempting to give into emotions when you buy new stocks or evaluate your existing portfolio. In this segment of Backstage Pass, recorded on Oct. 27, Fool contributors Rachel Warren, Brian Withers, and Trevor Jennewine answer a question that's on a lot of investors' minds at the moment: Should you change the way you invest in stocks right now? 

Rachel Warren: It's no secret the market's been volatile lately. After hitting a new record high on heels of a wave of exceptional earnings reports, the Dow Jones actually dipped by more than a 100 points earlier today in early trading hours.

The stock market is cyclical. Up and downs over the course of the market are normal, and it's also not that uncommon to see after another large rally following a stream of great earnings report.

Analysts are also saying that some of the disappointing earnings that have come out this season, such as those from Robinhood, for example, could be fueling some of this volatility.

But here's the question. We're headed into the final stretch of 2021, if you can even believe that, and if you view these recent events in the market as well as the ongoing volatility that's being fueled by investors' concerns about things like inflation, the ongoing supply chain crisis, the labor shortage, does this change your investment thesis at all as we head into the final few months of the year? Trevor, why don't you take this one first?

Trevor Jennewine: Thanks, Rachel. In general, my answer is no. I'm certainly not planning to sell anything in light of all of the chaos with supply chains and inflation and labor shortages. I think the most important part of my investment strategy is the long-term mindset and I think in general that's one of the biggest advantages that retail investors have compared to a larger institution. We don't have millions of dollars to spend on research.

We don't have analysts that can do that boots on the ground research. I think I remember seeing something once that institutional investors would have analysts on the ground when Apple was shipping iPhones across the ocean so that they could count the number of cargo containers that were coming off boats to get an idea of how quickly or how many phones they were selling each quarter.

We can't do that as a retail investor, but we can invest for the long-term and ride through those highs and the lows, labor shortages, supply chain headwinds and we don't have to meet any quarterly performance metrics like an institutional firm might.

I think that long-term mindset is an advantage. I'm not planning to sell anything, it might change how I deploy my money. One example is Coupa Software, it specializes in business spend management, so its platform helps its clients source the materials they need to run their businesses from a network of seven million suppliers around the world, and in doing so, it helps them realize cost savings and helps them strengthen their supply chains.

I think a company like that is particularly well-positioned to benefit in the current environment since there is so much emphasis on bolstering supply chain strength and trying to get those supplies that you need to run your business.

Brian Withers: Yeah, I think Coupa is a really interesting company for all the things that are going on in the market. Certainly having more customers on them helps just make their platform more valuable and I think that's a very positive thing for Coupa's shareholders. For me, I've tried to time the market in the past about whether it's over the course of a month, or trying to take advantage of dips, and I don't do that well. I end up short-changing my performance.

It seems like every time, so I've given up and the easiest thing for me is just to buy and hold. Yeah, it's boring. But you know what? It's easy. It's really easy, and you get paid for waiting. You get your stocks appreciate over time as companies become more valuable and that's just something that I love.

A few years ago, part of the reason that I am not sweating what's going on in the market, a few years ago, I drastically reduced the number of stocks that I hold, and today I only hold 19 stocks and they're my best ideas, my highest conviction companies, my highest conviction ideas and I just wanted to share, I have a picture of how my stocks are setup and I'm going to share that in just a second.

As I was making the transition to lots of stocks, to a very few focused portfolios, I got out of retail brick-and-mortar because I felt like e-commerce was coming on and the fact that, for somebody to drive to your location and go in and purchase something, just that friction in that process versus an e-commerce solution was, e-commerce is just so much easier.

Then companies also that depend on manufacturing goods, you need to have a supply chain. You need to have factories, you need to have retail outlets and if you don't have the retail outlets, you get to sell to distributors. There's a lot of work and a lot of physical processes moving through the thing and then at the end of the day, you sell one thing, and the next quarter you got to sell more things.

I've really moved out of retail brick-and-mortar and manufacturing goods that depend on selling things over and over again, and so actually my portfolio is really just focused around tech and e-commerce and that's done me very well over the past several years. I'll just share real quick what that looks like.

These are all 19 of my stocks. I put them in some different business categories across the top. Essentially you might call them software or cloud infrastructure, but I've looked at them very differently. Small business in the upper left-hand quarter.

These are companies that facilitate and help entrepreneurs and small businesses sell things online or run their business. I got enterprise software in the middle, cloud stuff on the right. In the bottom I got e=commerce and we talked a good bit about Teladoc last hour. I would just love Teladoc. I think they're in a great space. Then I got Lemonade and Trade Desk here. This is my portfolio. All of the things that are going on in the market, I think I'm very well-positioned to do well over the long term.

Rachel Warren: Excellent. Thank you guys both for sharing your thoughts. I very much agree with you, Trevor, about keeping that long-term mindset. and Brian, thanks for sharing your holdings. I agree, trying to time the market is one of the easiest ways I think, to harm the overall performance of your portfolio, and it also makes investing so much more complicated than it needs to be.

I think in reality it all comes back down to you invest consistently, you stay invested in the market throughout its ups and downs, and buy more shares of great companies with quality underlying businesses, no matter what the market may be doing at any given point.

It's interesting because when I bought my first stocks, not so long ago, actually, I'm a newer investor, I had studied the market for a long time before jumping in. I focused on industries that I felt would be really resilient in a wide range of market environments. Healthcare, tech, and e-commerce are the three primary industries that I'm invested in. I don't intend to change my pattern of investing.

My plan is to continue investing in companies I love, every few months, keep buying up shares, really no matter what's happening in the market, and companies that I know and feel comfortable with.