My stocks have been getting killed. How about yours? It's been a horrible run since the market peaked in late April. The Nasdaq is down about 8% in just a few months. You know how bad it's been for me? I wish my stocks were down just 8%!
As the lead advisor for Motley Fool Rule Breakers, I've watched many of the 34 dynamic growth stocks we follow drop 30% to 50% from their highs.
Still, no safety in numbers
Maybe you know the feeling. Every good earnings report these past few weeks triggers a 10% sell-off. eBay
Every new buy you make drops. And that stock you meant to sell last spring? It drops, too. And the industries you like are in cyclical declines! High-end food and beverage retailers like Starbucks
You know the feeling. And even if you don't, I know the feeling. I've felt it before, during several bear markets. World's Worst Investor: Me.
A simple solution?
William O'Neil, the founder of Investor's Business Daily, seems to offer the perfect balm. O'Neil advocates selling any stock that drops 7% from your purchase price. His premise? This will help you avoid large losses. After the summer of 2006, O'Neil's advice may strike the new investor somewhere between tempting and ingenious. But for those of us who are shooting for the real home runs on the stock market, jitterbugging your way out of a stock because of a couple of bad days doesn't feel like investing. The most dynamic winners will routinely give back 20% gains along their multiyear runs to stock market glory.
At Rule Breakers, we occasionally cut a stock if we see the long-term prospects of the company turn sour (like Great Wolf Resorts
Millennium has only just begun to recover from its March highs after being down 20% in May.
And that's my point
You see, when the market makes growth-stock investors feel like the World's Worst, causing newer and shakier hands to sell, I've learned to do quite the opposite. Whenever I feel like the World's Worst Investor, like four years ago in the summer of 2002, or four years before that during the "Asian Contagion" summer of 1998, those were actually great times to start buying.
I see a couple dozen companies in our Rule Breakers service now that represent compelling buys at today's prices. One solidly profitable alternative energy company is off 35% since May 1, while a security company, 47% off its April highs, has the same deep pipeline for X-ray and inspection systems that it had at the beginning of the summer. Both of these companies are leaders in their fields but are in early enough stages that they don't have household name recognition. We recommend them for purchase today.
Our scorecard has gotten hammered over the past four months, giving up most of our gains of the past year. But you're not investing over the past year. You're investing over the next year, and the years to come.
Outlast the summer heat
Rather than trade along with William O'Neil, who'll help you avoid some losses but also cause you to sell yourself out of some great long-term profits, we have a different answer: Get educated, get Foolish about your money, find the best companies the stock market has to offer, build long-term positions, and ride out the occasional bad summer. It's when everyday growth-stock investors feel like they're the World's Worst that investors sitting on the sidelines should sit up, take notice, and add a Rule Breaker or two to their portfolios. Take us up on our offer of a 30-day free trial to Rule Breakers, and you'll discover tomorrow's great companies a day early.
This article was originally published on Aug. 1, 2006. It has been updated.
David Gardner is co-founder of The Motley Fool and lead advisor of Motley Fool Rule Breakers. He has been investing successfully in dynamic growth stocks for 22 years. He owns shares of Starbucks, Millennium Pharmaceuticals, and eBay. Under Armour and Millennium Pharmaceuticals are Rule Breakers recommendations. Starbucks and eBay are among his Stock Advisor recommendations. The Fool has a disclosure policy.