Why Stocks are more important than the Stock market?
From a 55% loss to 2000% profit story …
Yes, you heard it right.
What I am trying to say is that paying attention to your individual stocks and the business behind them is far more important than worrying about the overall stock market.
But don’t you think market corrections or crash are likely to affect our individual stocks as well?
In the long term — No.
In the short term — Yes.
Let me explain, let’s say you’d bought 100 shares of Amazon at the price of 90$ in the year 2007 and within months after that we all witnessed a major market crash of 2008. The Amazon stock plummeted by almost 60%
In short, your 9000$ investment got cut into half within months. Now, like the most of the people in the market, if you had sold the stock just out of fear(emotions), you made a blunder.
If you understood the importance of Amazon and why it’s business was going to grow rapidly over the next 5 years at least, you could either add more shares as the share was available at 55% discount or at least hold onto your shares instead of doing what majority of the investors were doing which was selling left and right.
In less than three years, the market was back in the upward swing.
Now, here is the fun part as soon as the market sentiment turned from negative to positive, the companies which were growing irrespective of the market crash and expected to grow even further, started getting rewarded heavily.
All of sudden stocks like Amazon were those hot girls whom every guy in the college wants to date.
Amazon is one such example, there are many stocks like that and there will be many in the future as well.
Investors who stuck to their individual stocks in those harsh times got the returns beyond their expectations. This is not some fictional fancy story; it has happened from time to time through out the history.
From a 55% loss to 2000% profit story
Go look at the stock prices of Amazon and Google and many others between 2007–09 and see how they fell by more than 50% and within a couple of years they were back onto upward trajectory.
Not only Amazon’s stock broke even but instead it went up by more than 2000% in the next 9 years because the cream always rises to the top.
Here is the thing stock market is going to fluctuate, no doubt sometimes these fluctuations are wild.
Some of you might be thinking, I got this, the key is to hold the stocks for long term no matter what. Right? Absolutely not.
Ask investors who bought stocks of Fannie Mae and are still holding them. Even though the market (S&P 500) has gone up by more than 3 times since the 2008 crash, the poor Fannie Mae stock price is still down by almost 97%. That’s a 97% loss to the investors who stuck to Fannie Mae for the long term.
Understand this well, market plummets and sooner or later rises back again and if the stocks you are holding are really great, not only they will rise back but will give you returns beyond your expectations.
However, if the stocks you are holding sucks, you better cross your fingers.
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