Diversified Bullish

Musings About Investing (Not Financial Advice)

Jul 11, 2022

When Stocks Go Down

If a stock goes down, it may still be a good investment. Some investors act like a stock you own should never go down, and if it does it's not something you should invest in. This view is unreasonable because as we've seen in 2022, market and geo-political conditions can have broad-sweeping effects on all stocks and index funds regardless of company performance.

Investors like growing companies. In recessionary times, investors like profitable companies with stable product demand. Therefore, the companies that are less profitable now but investing heavily in the future may be undervalued currently compared to their potentially more developed, profitable future.

Stocks like NET and SNOW are tech infrastructure plays that have been hit hard by the flight to more established companies. Their underlying bull theses are still in tact. Today, they are priced at a 50%-60% discount compared to their price at the beginning of 2022. The recent market turbulence is allowing me to lower my cost basis on both positions. In the long run, savvy investors will repurpose this downturn into an opportunity. I'm betting that will be the case with these two promising companies.

Sometimes stocks will go down and it is not necessarily an indicator of weakness. Trust your convictions and consider tuning out the stop loss daytrader heros. Sure, it's fine to cut losses. However, sometimes it's necessary to hold your shares "in the red" until conditions improve. Your positions will recover faster if when stocks get cheaper, you buy more.