The Importance of Mindset on Tough Market Days: 3 Investors Weigh In

There's no other way to slice it: It's been a rough time for investors lately. And more volatility could be ahead. How should long-term investors approach this uncertain market period? In this segment of Backstage Pass, recorded on Nov. 22, Fool contributors Jason Hall, Rachel Warren, and Toby Bordelon talk about the importance of mindset during bumpy periods in the market. 

Jason Hall: I do want to talk about [Motley Fool members] FoolFans, Vihaan, and Panic Buyer all talking about their portfolio results today. I decided to look at my portfolio today. I looked at my portfolio and I was down about 0.3% or so, somewhere around there.

Looking on The Wall Street Journal's main page just to see where the big indices finished up, it was one of those weird days where the market surged and then just that last hour, guys, I'll tell you, just gave it all up. The S&P 500 actually finished the day down a little bit. Dow was about breakeven, and Nasdaq -- anybody that's real tech heavy took a beating, and Nasdaq was down about 1 1/4%.

Let's take a little mindset break. I think that'll be really good. There's two questions in here, or two comments in here. Let's see. So Vihaan says, his portfolio was down 6% today. Talking about how mindset has to pay its debt. This is really important. I'd like for us all to talk about mindset. Then FoolFans was also talking about whether days like today are considered thinking-about-buying opportunities.

Let's start with that first part, the mindset. I just I want to share this. I think it's really important. Anybody that's real tech-heavy or maybe you've joined one of the newer portfolios that has a lot of high-growth stuff in it and you just have a bad day like this, so pretty concentrated, and you just take a beating. This is where you have to remember your goals.

This is the thing that helps me the most, is not just remembering what my goals are, but when are my goals. My biggest financial goal is retirement, obviously. That's still -- give or take, obviously, depending on financial success and other things -- probably 20 years away. Again, I am a net contributor. I'm putting new money into my account on a regular basis and I am buying on a regular basis, makes it easier for me to look past days like this, because I lost real money today, I did.

Those of you that your portfolios are down, you did: You lost money today, your portfolio went down, you lost money. The good thing is: It's not money that matters right now, right? It's future money.

As long as you remember that, for me this is the big "Time in the market beats timing the market" every time. That's the key. I'd love to hear from you guys a little bit on this here. Who wants to go first? Rachel?

Rachel Warren: I'll jump in. I totally get days like today can be a hard day for investors. I was getting notifications all day today about my portfolio. I happen to be very much invested in, I'd say about half my portfolio are high-growth stocks. Some of those stocks are tech, and then I counterbalance those with quite a few slower-growth healthcare companies.

But all that's to say is companies I'm invested like Shopify, Etsy, for example, those were all down in a pretty big way today. For me personally, I do not check my portfolio every day. I do get notifications. I may or may not look at them [laughs]. Because for me, I am not personally concerned by day-to-day movements.

I focus on months, but more specifically over years. I will look at a stock, for example, like Shopify, let's say, that had a bit of a rough day today, and it's no fun. I don't love that when you feel like, "Oh, well, today I lost money." But the thing is, unless you are planning on cashing that money out, or if you were to cash that money out because you had a moment of panic, you haven't actually lost any money.

It's a temporary decline that can easily be regained the next day or the next week or a little bit after. But you look over the long haul. Over the past year alone, Shopify has gained more than 60%.

I'm personally very happy with those returns. For me, I try to not think of day-to-day movements as "I lost money," because when it's companies that I believe in, and I think have a really great long-term runway of growth, and I'm not planning on cashing out of those companies, I'm pretty confident that that'll come back up and then continue to grow in the years ahead.

That's my mindset about that. Seriously though, not checking your portfolio every day can be great if you tend to be a little more nervous on those day-to-day movements of the market, which is totally understandable. Maybe limit how often you check your portfolio.

Things are especially volatile right now. A lot of days we've seen market overreactions. I know we've talked about that on the show a lot during earnings season. You have a stock that reported pretty great earnings and then the stock plunges in after hours trading. I think understanding that we're dealing with a new investment landscape in some ways. But over the long haul, these companies, I'm very confident in their ability to grow.

Jason Hall: Toby.

Toby Bordelon: It's a tough day. Days like this can be tough. I don't even know where my portfolio ended up. I remember this is what you were alluding to, Jason. I remember seeing a bunch of comments on Twitter about how awful today was. How many stocks were down so much.

Then I looked at CNBC's website and saw the S&P, Dow hitting highs -- all-time highs. This is earlier today before the reversal at the end of the day. It occurs to me that it's not always useful or instructive to look at the indices at a time like this, even though they give you a nice broad overview. Because when you're dealing with it, what matters is what your portfolio is doing, it doesn't necessarily matter what the market's doing.

There can be a disconnect, and sometimes that disconnect is hard to deal with. I think one way you deal with that is you look at the relative performance over the course of the year, over the course of five years. Are you beating the market over the course of the year, over the course five years? If so, then the price of that might be a little bit of underperformance on days like this.

If you're going to be in those growth stocks, it gets you those market-beating opportunities. You're going to have some market losing days, like this too, and that helps you set that mindset. Yes, I'm underperforming in a big way maybe today, but that's the price of my overall outperformance over my investing career. If you're not outperforming over a long time period, maybe reassess and adjust your strategy.

Another thing that you mentioned, Jason, you were talking about how you're investing for retirement for a couple of decades away. I feel like your portfolio, if you did nothing, is going to be higher 20 years from now. I think that's probably true. It's not guaranteed, but I feel like it's probably true for everyone who is suffering a loss today, whether it be 2% or 5%.

I also suspect, again, not guaranteed, but if you are following those Fool's guidelines of: Get yourself 20-25 companies and a well-diversified portfolio. Make sure you've got a little bit of cash. Make sure you're not too concentrated in one position. If you're following those broad portfolio-construction principles. I also suspect that 20 years from now, your portfolio's going to be higher than it is today. I think that's what we got to remember as we set our mindset on. That's what we focus on, that "Where am I going to be when I need the money?" Not "Where am I going to be tomorrow morning?"

Jason Hall: If a stock, I want to preface this, this might be a little controversial, bold to say before we get back to our other topics of the day. No, I'm not even going to preface it based on portfolios, so I don't think it matters.

If a single stock makes up 5% of your portfolio and you have never read the company's annual reports, you're doing it wrong. I tweeted this: Spend 10 times more time reading company filings, whether it's the quarterly report, the 10-K, the annual report, the proxy where you can find out how much inside investors and management own of the company that they run, read the 10-K of their competitors. If you're not doing that, you're selling yourself short.

I have no financial training. Rachel, I don't know. You have legal training. I don't think you have financial training, Toby, you're an attorney, you don't have specific financial training, I believe, either. A lot of folks are self-taught how to do this.

Anybody can read a 10-K. Anybody can do it. Invest in understanding what you own. That is the most powerful thing you can do to inoculate yourself against the disease of freaking out when the market is down on days like this.

That is the most powerful thing you can do. If a company makes up, again, if a company makes up 5% or more of your portfolio and you've never read the 10-K, you're doing yourself a major disservice, because I tell you, reading those annual reports, take an hour and do it. You're going to find conviction or you're going to find out that you own a company that you own too much of or you shouldn't own. I think it's amazingly powerful.