In today’s blog, we aren’t going to look at individual stocks. Instead, we’ll talk about volatility and the state of the Stock Market moving forward.
So, in 2020, the market was great. March, April and May specifically looked really well and attracted a lot of new investors. Or, in other words, it was pretty easy to make good returns, even for a beginner. And don’t get me wrong – I’m all for new people getting into the market and securing their financial independence. But it’s not something that can last in the long run because the market always corrects itself. I know it, you guys know it, all of the people in my Private Investing Group know it … but many of these new investors who just stumbled into the market during 2020 didn’t. And so, these people went straight into small-cap companies because they looked so incredibly lucrative and expected that it would last forever.
Then, March 2021 happened, and the overvalued stocks started dropping. But, of course, when an overvalued stock starts dropping, it doesn’t just return to its “correct” valuation and stop there. It keeps dropping. And that’s exactly what happened to all of those small-cap companies the new investors got into. They dropped hard. The solid large-cap and tech companies were the ones who weathered the storm largely unaffected, while the smaller businesses crashed and burned.
I made a couple of blogs talking about this because I wanted to explain the situation and help people understand that this isn’t “THE END” of the market or anything, but just a normal thing that happens. And, yes, I know that a lot of companies dropped much harder than usual, but, really, what else could you expect when you look at the valuations they had? That’s just the stock market for you, guys.
Why is this happening?
- Supply line issues (mainly the US) – things are more expensive
- The global health situation – new infections variants and lots of new cases
- Closures and overall worries – people are less likely to spend money
- Restrictions and mandates – people are less likely to go where they want to be to spend their money
- Recession worries – a recession will happen at some point, but there’s really no way to accurately predict it
- Forward P/E Ratios for the S&P indexes are off the charts – this will cause more volatility down the line
All of these things affect the stock market and create more and more volatility. Then, the stocks start dropping. The impatient, scared or inexperienced investors quickly sell out of their positions, and the stocks drop. Then, the long-term investors come in and start buying cheap shares. Eventually, the price starts going back up. And this cycle repeats itself over and over. To be honest, I expect this trend to continue for a while because, as we all know, these factors aren’t going away anytime soon.
So, what about 2022? What should you expect? In short – volatility. Yes, really. But okay, I’m a long term investor, and if you’re reading this blog, you’re either following a similar strategy or you’re looking to learn how long-term investing works. So here’s what I think:
Patience is the key.
In the end, the long term is the only thing that matters. I don’t buy stocks because I like them “right now”; I buy stocks because I believe in the business for the long term. I look for reliable companies with good fundamentals, solid numbers and excellent management. As long as these factors are present and I agree with their vision and values, I can confidently sit on my position and wait.
And that’s all I’ve got for today!
If you enjoyed this blog, please don’t forget sharing it with your friends. As always, I’m open to questions and requests for future blogs, so if you’ve got any of those, feel free to drop them in the comments section below.
If you’d like to learn more about the stock market and really boost your investing career, check out our Private Investing Group. We’ve got a ton of exclusive content, free PDFS and eBooks, courses and more.
Thank you all for staying with me until the end and until next time!
Recommended books for further reading:
- Shares Made Simple: A beginner’s guide to the stock market
- How to Make Money in Stocks: A Winning System In Good Times And Bad
- Investing QuickStart Guide: The Simplified Beginner’s Guide to Successfully Navigating the Stock Market, Growing Your Wealth & Creating a Secure Financial Future
- The Five Rules Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market
- Stock Market Investing For Beginners: The Investment Guide – How to benefit from the crisis, invest in stocks and generate long-term passive income incl. ETF and Stock Picking Checklist
If you are looking to open an investment account, follow these links below:
- Passive income
- Silver & Gold coins
- Interactive Brokers
(‘68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.)