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Should Long-Term Investors Shift Their Mindset During a Market Sell-Off?

By Rachel Warren, Jason Hall, and Toby Bordelon – Jan 10, 2022 at 11:54AM

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It's important to look beyond day-to-day fluctuations in the market.

To say that the market has been all over the place the past few months is a bit of an understatement. Plenty of high-flying stocks that were the biggest winners in the earlier days of the pandemic have fallen to surprising lows, and market volatility doesn't appear to be letting up as we enter 2022.

Should this change how investors build their portfolio as the new year kicks off? In this segment of Backstage Pass, recorded on Dec. 13, Fool contributors Jason Hall, Rachel Warren, and Toby Bordelon respond to a member's question. 

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Jason Hall: So, Vihaan has a good question here: "Hi, team, what's the mindset when the market sell-off happens? When you see a dip of 3% to 4% of your portfolio. Do you add more capital to stocks, if you can? If they're down to 5% to 8% percent a day, with inflation and interest rates rising is tech a good place? Are we to expect a bear market in tech?" I will tell you this guys, I'm not changing my thoughts about technology in the cloud and software as a service. That's clearly where the puck is going.

It's so obvious that's where it's going. These businesses at scale are enormously profitable. I think if you're going to overpay, if you're going to take on multiple risks, that's where to take it because five to 10 years from now, those businesses at scale, even with a multiple hit, because the growth rates that they are generating, to Toby's earlier point, I think you still make out over the long term.

I don't pay attention closely enough day to day to think about investments. I'm looking like every month to two months thinking about allocating capital, but I'm not looking that closely, Vihaan. Toby, Rachel?

Rachel Warren: I can jump in real quick. I'm like you in the sense that I'm not tracking it as much day to day for scooping up more stocks. But I will say, I think tech continues to be a great place to invest if you have the risk tolerance for it, a lot of those types of stocks or high-growth stocks.

I think that if we have another correction in the near future, there could be some serious downward pressure in that sector for a while. But I still think they're going to continue to consistently grow over the long run, especially those software-as-a-service stocks. Even bigger companies like Apple, I think it has a lot of growth opportunity left.

I personally think it's a great place to be. I think we've seen that that area, especially some of these top growth stocks, have had some rough days lately. But the underlying businesses are still great, so it doesn't change my assessment of that area at all.

Jason Hall: It's easier to manage our risk tolerance, like in my case, about Zoom the day before the 2021 high in February, because I know I can add capital to it as the price comes down. For investors who aren't necessarily in that position, you do have to think about that risk tolerance, Rachel, to your point. Toby?

Toby Bordelon: I wouldn't say anything differently. I think just make sure you're able to weather those downs and roll with it but taking advantage of the opportunity. I don't think for most of these companies, they're not -- nothing wrong.

Jason Hall owns Zoom Video Communications. Rachel Warren owns Apple and Zoom Video Communications. Toby Bordelon owns Apple. The Motley Fool owns and recommends Apple and Zoom Video Communications. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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