Are Investors Too Focused on Short-Term Market Volatility?

In volatile market times such as those investors have been seeing lately, it's all too easy to fall into the trap of focusing on the day-to-day movements of your favorite stocks rather than what's happening with the underlying businesses. In this segment of Backstage Pass, recorded on Jan. 7, Fool contributors Toby Bordelon, Will Healy, and Rachel Warren discuss. 

Toby Bordelon: Even from someone who has seen a rough time before, I got rattled in 2020. I'll freely admit that. Though I had experienced something like that before, it still rattle me and it was still hard to deal with.

For everyone who is having a hard time dealing with substantial drops in stocks you own, I feel you. The best suggestion I can give is, if you don't have to sell, don't. If you have money, if you have cash you can put to work, go ahead and do it, knowing that it can get worse.

If you've got a big chunk of savings, don't throw it all in necessarily unless you're prepared for it to get worse. 

But if you've got a steady job that's generating more cash flow than you need right now, steadily put it to work. That's the best thing I think you can do in a time like this. Thoughts from either one of you.

Will Healy: I echo your point. I also want to add that the indexes disproportionately represent the top stocks. A lot of the growth stocks that Motley Fool recommends, they're getting hammered right now.

You've got to keep that in mind. Again, I had a point, I can't remember it right. [laughs]

Toby Bordelon: But I think that's right. A lot of the companies people are investing are probably getting hammered getting the index right now.

Will Healy: Here's my point, go back to the chart you just had, if you still had it up please.

Toby Bordelon: Yeah, here we go.

Will Healy: Change it toward where you see the prices, and show the price on Amazon.

Toby Bordelon: So we're talking.

Will Healy: Go back, go back to just the nominal price.

Toby Bordelon: We're looking there, I can get rid--

Will Healy: The price of Amazon as we'd see was $72.50 a share. Where is it now?

Toby Bordelon: Let's extend this, if I can do this without losing it here, we'll go to 2022.

It's going to take us basically to today. There you go. The price of Amazon is this blue, and you see how much it's come to $3,252 from $72. You can see the percent change off of this and look at that.

Will Healy: Yes. My point is there may be pain now, and I'm not going to promise that every stock is going to do as well as Amazon did. But if you're willing to endure the pain and be patient, in most cases, if you have a good company, it will pay off.

Rachel Warren: Yeah.

Toby Bordelon: I think that's right. And Vihaan does note, he added to his position at MercadoLibre today.

When you can do it, do it, when you can add, add, just keep on investing. I think as we preach here, you keep on investing through good and bad times.

Rachel Warren: Yeah, I will just jump in real quick. I'm also, Vihaan, and I've said this before and Toby knows this, I'm a newer investor. I was not invested in the stock market in the great crash of 2020, and I was definitely not 10 plus years ago either.

The thing for me that I've noticed is I have a lot of stocks that have continued to fare very well. There seems to be a lot of investors that are targeting more the slow growth value stocks right now, and that could be a trend that shifts again more than we see in the future, more people headed toward traditional growth stocks and those come back up.

I think the key thing to remember here is all of the companies that I own, none of them have I changed my investment thesis about, so for example, Etsy, really popular company. A lot of people were buying that stock earlier in the pandemic.

The business still looks great. Even though we're now in a different phase in the pandemic in the sense that a lot more people are able to go and shop in-person versus maybe just online like before, it's still seeing this massive business growth, incredible revenue and net income growth, it's doing an excellent job of both retaining and expanding its active seller and active buyer count.

But the stock has been all over the place. The other day, I got a notification on my portfolio that Etsy was down 5%, then I think the day before that, it had been up 5%. [laughs]

It's like those day-to-day movements, especially right now, are really volatile, but I still have a lot of faith in Etsy, as an example, and its long-term ability to grow. 

On the other hand, I have stocks that don't traditionally see those really high fluctuations in either directions. They are not the kind that are going to just massively in richer portfolio overnight, but those are also the companies that haven't been as volatile. For example, one of the healthcare stocks I own, Johnson & Johnson.

I know for me, my personal approach has been I don't check my portfolio every day because I think that would just lend itself to too much anxiety personally.

But the other thing I do personally as part of my long-term investing thesis is I invest in a mix of growth and value stocks, so when maybe one sector is getting more beaten down, the other helps to balance that out in my portfolio.

But these are all companies I'm planning on holding onto for the long haul, so I completely understand as a new investor that feeling of looking at your portfolio and seeing it dip.

But I would say as we've looked at those charts and how the market, if you sold at those lows, you would have realized tremendous losses. If the long-term investing thesis you have for the companies you own holds true and you have the capital to deploy, just keep adding to your positions.

I think all of us are going to have to be patient for now to wait for some of that recovery. But I do think that will happen and the market has taught us that.

Toby Bordelon: Yeah, good thoughts, everyone.