When the index falls, smart investors are waiting to pick it up.
If you invest long term you minimise your chances of losing big. I'm almost certain every seasoned investor remembers the share they sold one day, only to see it rise the next day. Hindsight is the deadliest thing that sleeps under any investor's bed. Careful analysis and the purchase of quality stocks is a great way to give you peace of mind.
However, many investors believe the best way to invest is to turn off your computer monitor and check your portfolio in 6 or 12 months. If you invested in the S&P/ASX 200 Index (^AXJO)(ASX: XJO) in October last year and checked it today, you would see a positive gain of 13.27%, but from this time last week it's down 1.6%. Perhaps it's not a bad idea after all.
But if you're the best investor, you set yourself some easy rules.
- Rule number 1: Don't lose money
- Rule number 2: Don't forget rule number 1.
Sound familiar? Warren Buffett of Berkshire Hathaway (NYSE: BRK-A), has a method that many astute investors have clung to in times of uncertainty. Take the current European crisis, Cyprus, a small island nation is creating financial chaos right around the world. I bet Buffett isn't running to sell off his shares, but looking for great stocks at a discounted rate.
During the European crisis of 2012 you could have bought any number of quality companies and turned a profit. Domino's Pizza Enterprises Limited (ASX: DMP), Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Limited (ASX: TLS) have all increased by more than 30% since their lows in 2012.
Foolish takeaway
In choppy markets many investors' worst fears are realised. Wait it out or abandon your ship. Leaking small amounts of money from quality stocks gives you peace of mind, but if you continually forget rule number 1, you're likely to sink in the rising tide that follows.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.
