The more you think about stocks as pieces of businesses, the less rattled you’ll be when stocks pull back violently. You’ll be too distracted to worry about your growing paper losses, because you’ll be busy trying to hunt down undervalued businesses amid the wreckage. While a vast majority of the investing public is losing sleep over President Trump’s trade war and the negative implications from the Fed, you’ll be taking a bottom-up approach, focusing on individual businesses themselves, rather than wasting your time and making yourself anxious over something that’s entirely out of your control.
Focus your efforts on where it counts. Focus on your long-term investment goals, and try to leverage the ugly situation for what it’s worth. Yes, it’s disgusting over the near term, but in the grander scheme of things, this past month’s turmoil will be a small blip that you’ll look back on, even if we drop into bear market territory (+20% drop from the top).
With the proper mindset, you’ll be able to rise out of the nastiness ahead in the game, as you shun the mainstream financial media and focus your efforts on keeping your cool and making smart, calculated decisions. You see, investing is one of the few arenas where an individual can beat professionals and academics at their own game.
You don’t need an MBA or a degree in economics to come out ahead in the world of investing. You just need the ability to keep your cool when things get too hot to handle. That’s easier said than done though, especially when you consider many beginners claim they have a high risk tolerance in the questionnaires they fill out for their financial advisors, when in reality, they’ve never experienced a true market meltdown in real time.
As an investor, your job is to stay out of your own way when times get tough, assuming your portfolio meets your long-term investment goals, whether it be for early retirement or saving for your newborn’s education fund. If you’d bought and held during the last crisis, you would have done just fine six years out! And if you’d dollar cost averaged into quality names on the dip, you would have roared out of the gate as the next market cycle emerged.
Which stocks should you stick to in times of turmoil?
Stick with quality Dividend Aristocrats that’ll reward you with dividend payments through the difficult times. Such trusted names, like Canadian National Railway (TSX:CNR)(NYSE:CNI) and Fortis (TSX:FTS)(NYSE:FTS), are buys without hesitation, no matter how ugly things get. With the “r” word being thrown around by pundits, the last thing you’ll want to do is attempt to catch a speculative falling knife that experience amplified losses on the way down.
With Canadian National and Fortis, you’re getting boring businesses that’ll pay and hike dividends every single year, and it won’t matter if there’s a recession, a depression, or a nightmare-inducing deflationary environment. You’re getting paid to wait, and every penny should go back into buying more shares of other quality companies.
Foolish takeaway
The herd is starting to get fearful. As a Foolish contrarian, you should start getting a bit greedy. Not too greedy though, as the fear gauge is nowhere near “panic mode.” While you shouldn’t be backing up the truck yet, you should start putting some of your cash to work now, and incrementally over the next few months. If indeed we are in the first innings of a bear market, you should stick with quality dividend payers and defensive plays.
Stay hungry. Stay Foolish.
Fool contributor Joey Frenette owns shares of Canadian National Railway and FORTIS INC. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.