Consistent stance of value stock investors: only buy oversold stocks
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※This article is a direct reprint of a paid-member report dated 2018/10/13. Stock prices have fallen significantly since then, but the economic situation lies on this same trajectory. Recognizing the essence and maintaining a consistent policy is the correct stance expected of long-term investors.
The U.S. stock market’s sharp drop is spreading across the world. The Nikkei Stock Average declined by 1,089 points (4.6%) in one week.
The decline is said to be caused byrising U.S. long-term interest rates and concerns about a global recession due to the U.S.-China trade war. When interest rates rise, funding to financial markets slows and corporate capital expenditure becomes more cautious. The longer the trade war lasts, the more future prospects become uncertain, dampening corporate activity.
However, these issues are not new or surprising. The problem is that, despite these risks,U.S. stock prices continued to rise as if ignoring them.
Stock prices are thought to rise in the long term along with corporate growth, but if this happens over too short a period,there will inevitably be a need for a correction. The current drop can be regarded as part of that correction.
However, it cannot be said that prices will immediately rebound and resume an uptrend.In the medium term (months to years), the probability of a recession wave is high. The U.S.-China trade war could be a trigger, and many investors fear this.
On the other hand, one should not be overly fearful. Even if a recession occurs, stock price declines may not be that large. If you sell your holdings, you may miss the subsequent rise, ultimately lowering your performance.Frequent trading just lowers returns.
Once a downward trend begins, selling pressure feeds on itself and stock prices can fall sharply. Unlike during upswings, the priority becomes selling rather than holding onto value in front of you.Stock prices move both up and down beyond reasonable limits. The law remains unchanged in the past as it is today.
What value investors should do issteadily buy oversold stocksand hold them. If you continue to hold and think they are overpriced later, you can sell and wait for the next opportunity.
There is no need to forcibly buy stocks whose value is unclear. Invest only when you are clearly convinced of their future growth potential. Of course, prices may drop further from there, but if you are convinced, you simply buy more from that point.
There is no need to trade every day, week, or month.Only a few times a year, when you are truly convinced, should you take bold actions. Buffett also says the following.
“There is no such thing as a strike-out on the sidelines in the world of investing.”
