If you're a growth stock investor, the past few months have likely been a somewhat painful time. Just when you think your favorite stocks can't get beaten down any further, that's exactly what happens. In this Motley Fool Live video clip, recorded on Jan. 27, Fool.com contributors Matt Frankel, Travis Hoium, and Rick Munarriz discuss when they think growth stocks will bottom out, and why investors shouldn't be too worried about it.
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Travis Hoium: There's a number of questions about, where is the bottom from here, what should we do after the stocks have pulled back 50% to 80%? Broadly, I wanted to get your thoughts on how you're thinking about the market now, where you think it's going, where you're looking for opportunities, and what your mindset is in early 2022, given everything that's happened, not only over the last couple of months, but really over the last two years. Matt, maybe let's start with you.
Matt Frankel: At the beginning of the show, Travis shared a bunch of investing quotes, so I want to share one of my favorites. It is that "the markets can be irrational for longer than you can remain solvent." What I mean by that is, it can be really tempting to try to call a bottom and throw all your money into a stock that you think is a bargain. I'm looking at this as the time to tiptoe into some of these companies.
A lot of my favorite companies, I think someone mentioned at the beginning of the show, there's companies trading for just over what their cash position is. Rick mentioned it with Latch. I'm looking at companies like that and thinking, "Well, there's no possible way this could go down further," but they can. If this sell-off keeps up, if the correction keeps up, if inflation fears get worse, it could absolutely keep going. So, I'm using this opportunity to tiptoe into positions that I want to add to. Not throwing all my money in at once. Don't try to call a bottom because that never really works out well.
Hoium: What do you think, Rick?
Rick Munarriz: Yes. Again, it hurts when the market's dropping. Just like probably 2021, early 2021, 2020, the last half of 2020 probably felt really good to growth investors, like my kind of growth investors, where we were owning Zoom and the Pelotons, to just throw some that just basically completely backfired afterwards. The Rokus of the world, the Netflixes, the Teladocs, I owned before the pandemic, it's the stocks that, "Hey, we just happen to be perfect. We're like right in the perfect time for people to be stuck at home, flush with cash, as a lot of people had a lot of money to spend on their Pelotons and to upgrade other part of their life experiences from home."
That was great for the Wayfair, the Etsys. Everything that you could buy from home was great. Amazon, of course. But then it's changed. I think you can't root and cheer and celebrate your wins when you're doing well. But you also shouldn't necessarily celebrate or basically just commiserate just when your stocks are going down, because that's part of the process. More importantly, don't think that you've ever nailed the bottom on a stock. The whole additive of catching a falling steak knife is certainly true. Stocks that I bought a week ago, I thought I was getting a great price. I didn't think I ever nailed the bottom, and I did not.
We talked about Twilio. I bought Twilio two weeks ago, and I'm not at the bottom, obviously. That was not the bottom two weeks ago, a lot of things happened since then. But I'm confident that whether I paid a little bit more for it, it will be a rounding error in the future if everything that Twilio does does right, and everything the market eventually comes around to saying, "Hey, we've got to treat the quality stocks as quality valuations and premium multiples." Rather than just basically throwing the baby out with the bathwater, which is a lot what's happening right now.