Some good advice from the experts on stock investing:
- If you own individual stocks, review them and make sure you like them. If you don’t, or aren’t sure, you’ll feel horrible when it goes down 30% or 50%. And you would sell out in fear. If you really like it, you should be able to hold it through the storm and not blink. As someone said about guiding the ship by the lights from a distant lighthouse and not the waves crashing against the boat, just make sure the business will be doing well in five or ten years (and hopefully doing a lot more business). If so, sit tight.
- If you have stuff in your portfolio that is not high conviction, or even stuff you bought as a punt or on a tip, now is the time to clean house. Dump that stuff. You got lucky. Now dump that stuff while the tide is lifting all boats.
- If your portfolio went down 50% tomorrow and you would be upset, then that means you own too much stock. Sell down to a level where you won’t lose sleep if it went down 50% because it will at some point. OK, to say that it will happen in one day is a bit extreme. This is Joel Greenblatt’s idea; the mistake people made in the financial crisis is not that they didn’t sell before the crisis, but that they owned too much stock and they freaked out and had to sell in the decline out of fear. If you were comfortable with stock market volatility, you wouldn’t have sold out and you would’ve been fine (unless of course you owned too much of the ones that went bust!).
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