When the market is going through a turbulent period and your portfolio is taking a beating, it's often tempting to give in to the urge to sell the stocks that have taken the volatility the hardest. But is this really a winning strategy for long-term investors? In this segment of Backstage Pass, recorded on Jan. 10, Fool.com contributors Jason Hall, Toby Bordelon, and Rachel Warren discuss.
Jason Hall: Are you acting now or are you just riding it out?
Toby Bordelon: I am, to some extent, slowly. I did do a few things today. I can't mention name of the company because it was a trade today, but one company I've actually been looking at quite closely for a while as a favorite of many Fools and the opportunity was there today so I went ahead. But I'm also just sitting tight.
The thing is, you build up a cash position for scenarios like this. But at least for me, I don't always want to use that cash position fully in situations like this because you don't know where the bottom is. You never know what's coming.
Jason Hall: Yeah.
Toby Bordelon: You're always prepared for potential further drops. You've got to factor that in but on the same topic, you see an opportunity, you take it. I mean, if you've told yourself I am very interested in this company, but I think it's a little bit overvalued. When it becomes less valued, [laughs] you take another look at it, and if it works, if it looks good, go for it.
There's no reason not to, especially it's one that you believe in long term and you really want to own, you should do that. I have been through this way of things before.
I remember the financial crisis of 2009-ish, I had some great purchases, many companies I still own back then. That's been a quite a ride. One of them being Microsoft that's been around since then. It took a while to get it going, right?
Jason Hall: Yeah.
Toby Bordelon: That's the other thing as you were talking, I was reminded of this idea. You're saying that some of these companies that are down might never recover.
But there's, I guess you could say a corollary to that too. Some of them will recover. I think many of them will eventually. But the question is, how long does it take? If you've got a stock that is going to double over 20 years, that's not that awesome.
Jason Hall: Right. [laughs]
Rachel Warren: Not ideal.
Toby Bordelon: It's not the sort of thing where I think you should look at your portfolio and say all of the companies that are down, I'm just going to keep holding on because eventually they'll come back or whatever. One, they may not, but two, it may take so long to do that, that they aren't great investments. You look at your portfolio, what you have is what you have.
This is the situation today, accept that as reality and ask yourself, given what I know now, do I want to still investment in this company? I think for a lot of them you might say, yes, sure I do.
But there might be some where you've got questions about and you say, I don't know that I like this for the next decade. If not and if you see one another one that you like better, there's nothing wrong with making that switch, even if that means taking a loss, it's fine.
Jason Hall: Well, yes. Especially, if you don't fully believe in the business anymore, if the thesis is broken. Pricing, right?
Toby Bordelon: That's exactly right. I think we have to get outside of this mindset. It's a struggle for new investors. It's not the case that I lost money and I don't want that. I want to lock in the loss. I don't want to sell. I want to wait for it to come back.
Don't do that. The reality is what you see right now. You want to be invested in the best company that you can invest in. Sometimes what you do own, sometimes it might not be.
If you need to make a switch, make a switch and don't let the fact that you've lost 50, 60, 70% dissuade you from switching into an investment that might be a much better investment.
You've got to evaluate things as they stand, not as you would like them to be in some hopeful world that might have existed last week and doesn't exist now.
