The Motley Fool Discussion Boards

Previous Page

Investment Analysis Clubs / Saul’s Investing Discussions

URL:  https://boards.fool.com/i-think-gm39s-op-is-important-to-ponder-not-34131616.aspx

Subject:  Re: Stock market correction and SaaS stocks Date:  2/10/2019  11:54 PM
Author:  OrmontUS Number:  51566 of 70697

I think GM's OP is important to ponder. Not all of us were investing through the sudden crash of 2008/9, let alone past ones which occur every decade +/-.

It's not whether we intellectually understand that most of these stocks represent companies which can weather a storm, it's whether we are emotionally able to deal with the sudden loss of a large portion of our assets.

It is also expected that, when the bottom drops out, small-cap stocks will tend to be more volatile than large-cap ones. It doesn't have to make sense, it's just how the market works.

Currently, I have about 13% of my equity portfolio invested in stocks found on GM's list (or chosen for similar reasons). After playing with the strategies outlined by Saul for less than a year, they make up about 25% of my unrealized capital gain. A rational person would take another swig of KoolAid, ditch the rest of the portfolio and pump these suckers for all they are worth. That said, as I've mentioned when I periodically post my portfolio, there are a number of reasons why I own various classes of equities. One reason I did not mention is that I am (hopefully) aware of my personal pain threshold and realize that I would likely act irrationally if there was a great $ucking sound and my entire portfolio kept dropping over a period of a number of months until it lost half its value.

The "Great Recession" ended up dropping my net worth by about 6% - and yes, even that hurt. The reason why I fared that "well" was because my assets were appropriately diversified (largely helped by the multi-currency strategy I was using).

In any case, I am not advocating that others do what I'm comfortable with, but I am urging a bit of introspection. You have all felt a month of angst. Imagine if that feeling lasted for a year or more (especially if you needed the assets for some reason - loss of job, whatever). While I can't tell you when an event of this sort will happen, I can assure you that, at some future date it will. Some will use timing techniques which dictate selling most or all of your portfolio based on technical signals. Some will stoically take a long-term hold attitude (though since these stocks don't pay substantial dividends, there is an opportunity loss involved in this). But most here regularly trade in order to follow Saul's strategy and I suspect both of those strategies are not likely to be popular - leaving a very messy situation.

All corrections (actually very few) will be as short as what we have just lived through. Make sure you know your limits and pain thresholds and invest with them in mind.

Jeff
Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us