You can never count on stocks for short-term needs. As long as you have at least 5 to 10 years and you have chosen a solid company, there's a good chance you won't have to take a loss on a stock. But you must be patient and willing to wait for the market to turn around for that stock.
Yes, patience is a virtue you must have as a value investor. To get a good bargain, you need the patience to wait for a stock to recover, as well as the risk tolerance that allows you to hang tough even if the stock has been beaten down.
How do you know if the company is still on the right track? That comes with research and what Graham calls intelligent investing.
To be an intelligent investor, you must have the time and knowledge to carefully pick your stocks and then monitor your portfolio. So if your time constraints won't allow you the time you'll need for the research, you may need to be a passive rather than active investor. These differences will impact the type of portfolio you want to build as a defensive value investor.
You also need to know how you will react when the market takes a nosedive and drops 10% to 15%. Are you the type of investor who will run for the hills and sell off all your stock? If so, you do not have the risk tolerance to be an active investor; you need to develop a more passive portfolio with steady returns. A down market is the time an active defensive investor looks for good buys.
Another question you must ask is, what will you do when the market is going up 10% to 15% or more? If you think you're the type of investor that will jump on the bandwagon, you don't have the discipline to win as a value investor. When the market goes up that dramatically, stocks are usually overpriced. Active defensive investors might sell SOME winning holdings, but they would NOT likely buy any stock during this type of market unless they believe they've found a good beaten-down stock that the crowd missed.
While value investors need to learn patience, you should never hang tough if you believe you made a mistake and the company is performing much worse than you expected, or if you no longer believe in the company's management team. Take your hit and get out before things get even worse.
Yes, patience is a virtue you must have as a value investor. To get a good bargain, you need the patience to wait for a stock to recover, as well as the risk tolerance that allows you to hang tough even if the stock has been beaten down.
How do you know if the company is still on the right track? That comes with research and what Graham calls intelligent investing.
To be an intelligent investor, you must have the time and knowledge to carefully pick your stocks and then monitor your portfolio. So if your time constraints won't allow you the time you'll need for the research, you may need to be a passive rather than active investor. These differences will impact the type of portfolio you want to build as a defensive value investor.
You also need to know how you will react when the market takes a nosedive and drops 10% to 15%. Are you the type of investor who will run for the hills and sell off all your stock? If so, you do not have the risk tolerance to be an active investor; you need to develop a more passive portfolio with steady returns. A down market is the time an active defensive investor looks for good buys.
Another question you must ask is, what will you do when the market is going up 10% to 15% or more? If you think you're the type of investor that will jump on the bandwagon, you don't have the discipline to win as a value investor. When the market goes up that dramatically, stocks are usually overpriced. Active defensive investors might sell SOME winning holdings, but they would NOT likely buy any stock during this type of market unless they believe they've found a good beaten-down stock that the crowd missed.
While value investors need to learn patience, you should never hang tough if you believe you made a mistake and the company is performing much worse than you expected, or if you no longer believe in the company's management team. Take your hit and get out before things get even worse.
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