One step forward and two steps back
Today I’ve been spending a lot of time watching my portfolio on my stockbrokers’ website. The reason for this is that I recently tweeted that I’d reached a minor milestone, in that my portfolio was one-fifth of the way towards achieving the goal I’d set myself for financial freedom. Of course, nothing stays the same and a couple of days later the market had a couple of downturns and my portfolio is back to where it was last month. Bah!
It’s amazing how easy it is to obsess over these things. Even though I know the whole nature of the stock market means there will be highs and lows, it’s easy to forget that the best way to invest is to just keep regularly investing into quality companies and ignore the ups and downs. I know this is how I should think so why do I find it so difficult?
What eventually happened as the day went on was that I shut down my computer and went and got a cup of tea and a couple of Jammie Dodgers instead. I know that my shares could possibly dip again over the coming weeks but I also know that they’ll eventually pick back up, and even if there are dips, I’m still getting dividends from these quality companies.
Big losses, big gains
It’s made me think about what other investors would do if they don’t have much experience and decide to cash out on the first loss they make. I’d imagine there’s a lot of people out there who’ve missed out on some terrific gains after making an initial loss in the stock market, which is a real shame. An example of this is the tobacco industry. Anyone investing in tobacco in 2006 would’ve had a shock when sales of cigarettes declined massively after the government ramped up their anti-smoking advertisements.
At that time the tobacco industry shrank to 2.7% of the total share of the FTSE 100. But roll on 10 years and the size of the tobacco market has grown to 6.2%. Anyone who cashed out early not only missed out on regular dividend payments but also on some very healthy capital gains. The moral of the story is that the markets will always have highs and lows, but the trick is to ride them out and be in it for the long-term. Sometimes sitting back and doing nothing at all really is the best way to behave.