As an investor, it's tempting to think you need to rush to adjust your portfolio strategy when the market is going through a turbulent period. Choppy market stretches can also be a great time to buy more stocks on sale, provided you have the capital to do so. In this segment of Backstage Pass, recorded on Jan. 10, Fool contributors Jason Hall and Toby Bordelon, joined by Fool Canada analyst Jim Gillies, discuss one surprising way that investors should approach periods of extreme market volatility.
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Jason Hall: I think right now, a lot of people should be doing absolutely nothing.
Jim Gillies: Yeah.
Jason Hall: Absolutely nothing, right, Jim?
Jim Gillies: Yes, 99% of the time, you should be doing nothing.
Jason Hall: Yeah. I think a lot of people--
Jim Gillies: Regardless of market, seriously.
Jason Hall: Regardless. I think this is the kind of scenario where I think there are some great buyrs. I think there are some deals to be had. I think there's the potential for a lot of stocks that have fallen to maybe continue falling.
Because you look at the valuations and you think about interest rates going up and all of the various levers that affects stock prices, and it's maybe not as clear that they are necessarily going to bounce back.
Don't buy a stock just because you're anchoring on what you paid and it's come way down and you're like, "Well, it's going to go back to there, so I'm guaranteed to make money." Well, it's not a guarantee. Move on.
Toby Bordelon: Hey, Jason.
Jason Hall: Study. Go ahead, Toby.
Toby Bordelon: Can you show that chart you threw up at the beginning, the long-term S&P 500?
Jason Hall: Yeah, sure thing.
Toby Bordelon: Just real quick again.
Jason Hall: Well, I mean, I don't know about real quick.
Toby Bordelon: Well, because this goes to exactly what you're saying right here, I think.
Jason Hall: This is from, again, roughly the 2007 peak.
Toby Bordelon: Right. You see this dip right here in 2000 and 2020, right?
Jason Hall: Right here, yeah.
Toby Bordelon: Yeah. You don't have to buy there to do well.
Jason Hall: Right.
Toby Bordelon: You know what I mean?
Jason Hall: I'm glad you pointed that out. I'm going to do another one here. Come on. I can't type.
Jim Gillies: Hit the unlock key, Jason, come on.
Jason Hall: This is from the worst day to buy in 2007 to the worst day to sell in 2020. It's 5%. It's substantially less than the long-term returns average, but you apply enough time and that's how you really avoid losses.
Own good businesses, apply time, regularly buy more, take the good and the bad, and eventually you're going to make money. But setting the goal of, "I need to get 15% annualized rate of return" as your goal doesn't work.
Your goal needs to be: "I'm going to maximize my 401(k). I am going to invest 10% of my income every year." Those are goals. [laughs] Outcomes are outcomes.