One of the things that can shock most beginner investors is that the stock market is constantly changing. Every day the value of stocks fluctuates, due to news, and other events that can really impact investors’ emotions.
However, to be a long-term investor you need to be able to push your emotions aside. You want to avoid making decisions based on how you feel, or how a stock is performing. Stock performance and price have nothing to do with the intrinsic value of each security.
Detaching yourself from emotions
Being able to not be emotional when it comes to your own money can be extremely difficult. How can successful investors deal with losses and stock market crashes? You see the stock market is just a reflection of how the economy and the companies in the market are doing, but it can also be emotionally driven.
When emotions are driving investors’ decisions, this is when stocks rise or fall by a lot. Although this could make some investors completely panic or get super euphoric, it is always better to stay somewhere in the middle. You want to avoid letting your decisions be influenced entirely by how you feel.
This can make you buy the wrong stock, or even sell at a lower price because markets are crashing. Knowing exactly how to deal with volatility, and risk is therefore one of the most important steps for investors.
How you deal with stock price fluctuations
Understanding that stock prices fluctuate but the businesses themselves are not seeing these stock price changes. It does not affect the number of clients they receive, or even how well the company is performing financially. Being able to understand this is what separates experienced investors from non-experienced investors. It is also what can make you become a much better investor if you start using this in your market research.
What if my stocks go down?
Stocks can go down for a number of reasons, and it is not always easy to understand exactly why they went down. However, it is important to focus on the fundamentals of the business. Most of the time the price fluctuations either up or down reflect investors’ emotions. Therefore, a stock price may go down but it may not relate to how the company is operating and performing financially. You want to avoid making decisions just based on the stock price for these reasons.
Earnings drive the market long-term Earnings are the driving force of the stock market, especially in the long run. Although stocks might go up or down on a given day, over time the company’s earnings are what will determine how the stock price will move. Just remember to keep up to date with any news about the company, and the financial results released quarterly. This should be enough for you to monitor how the business is doing, and whether the stock price fluctuation reflects operational or financial challenges for the company. Focus on the fundamentals and you will get higher returns for your portfolio.