Record-high inflation and ongoing stock market volatility continue to keep investors on their toes. Should long-term investors continue to add to their portfolios in this turbulent environment? In this segment of Backstage Pass, recorded on Jan. 10, Fool contributors Jamie Louko and Danny Vena discuss.
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Jamie Louko: Expectations were inflated a lot in this, did result in some really high valuations. Now, these are coming back to life in the broad tech sector. As someone who is mostly invested in technology, I'm definitely feeling it, but like Rachel, it's not really affecting my investment strategy at all.
The only thing maybe would be if I'm looking at a company and I really like a company that I haven't invested in, I might be taking a smaller position, especially if it has a higher valuation, ready for that valuation to sink and go down lower so I can dollar-cost average more into it.
I already do that to some extent by making it a smaller position at the beginning so I can dollar-cost more into it instead of maybe two or three times, thinking four or five or even more times, especially if it's a higher valuation.
That's really the only thing that I'm doing. I have core stocks that are in my top five positions that are very stable companies. Companies like Costco (COST 0.12%), Domino's (DPZ -0.35%), things like that, consumer goods companies that are really stable.
I don't really feel the need to invest more into those, but I'm really focused on dollar-cost averaging more into stocks with high valuations in particular.
Danny Vena: One of the things that I think is hardest for us as investors to do is when the market is behaving, or should I say misbehaving, like it is now with broad sectors of the market just plummeting. It's really hard to pull the trigger and say, "Okay, I'm going to buy this stock."
Even though it was a stock that I had a really high conviction in three months ago and nothing company-specific has changed, it's really hard to actually say, "Okay, well, now that this stock is down 50% from where it was several months ago, I'm going to buy it now." Because fear is a wicked taskmaster, and so it's difficult.
But I would say, now is the perfect time. If you have cash to deploy, if you have your emergency fund set aside, if you have all of your bills paid and you have money set aside that you can sink into the market, I think now is an opportune time because we're seeing so many stocks down.
We know that in many cases, it's not the company itself or something the company is doing that's causing the decline in the stock price.
It has to do with either valuations that are adjusting based on the environment or they're just following the broader market lower. I think these are really good opportunities. Make sure you do this with money that you don't need for three to five years. But I think there are opportunities out there.
