by trendarchitect
A friend just messaged me saying that his portfolio lost 10% of its value recently and that this was complete doomsday. Judging by the futures, the NQ is down 6.8% from its highs (a 1.8% gap down this morning alone). I get that, it’s frustrating.
It is also noteworthy that the sell-off hurts technology stocks in particular. But mind that they were also the largest beneficiary in recent months:
- Nasdaq 100 is 53% above its weekly 200 EMA.
- S&P 500 is 31% above its weekly 200 EMA.
- DJIA is 19% above its weekly 200 EMA.
Which one is going to be hurt first and foremost once a correction is underway? Of course it’s going to be the most stretched industry sector. Information technology is 28% of the S&P 500, and 20% of the DJIA.
If you buy stocks, you’ve got to have conviction in them. You’ve got to know what you are buying. Am I going to dump all my holdings just because they’re “overvalued”. Of course not. I’m going to hang in there with stocks going down 30% and then come back up 80%. Even if that takes another 3 years. It’s the nature of the market and it is great at weeding out the less convinced.
Volatility is the price you pay for your returns.
If you held Apple all these years, you are sitting on a fortune now. Same goes for Amazon and many other megabrands of today. Amazon went top to bottom 60% several times in its history. You’ve got to have conviction in what you’re buying. I also go to the grocery store to pick my favorite marmelade brand. If there’s a 30% discount I’ll pile up. But you cannot ever pile up if you don’t have conviction in your holdings in the first place.
So here’s what I would do. Go through your portfolio name by name. Ask yourself why it’s there in the first place. Start with “I own XYZ because…”. Warren Buffett had also advised it in one of his interviews. If you can’t tell that story, sell it off. It doesn’t belong in your portfolio. Free up that cash so you can pile in when spectacular opportunities arise in future.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.