With market jitters increasing, gold plummeting, and the sickening attack in Boston, many investors will be asking themselves whether they should be selling before prices drop further.
For humans the natural reaction is often to ‘take flight’ – it’s a preservation thing built into our DNA over millions of years. However, more often than not, the ‘run away today and live for another day’ mentality – while great if you’re being chased by a lion – is not the right option when it comes to investing. Instead, scary days when the stock market drops and share prices are all of a sudden significantly cheaper than they were a day, week, month or six months earlier is exactly the time to be in the market buying shares.
It’s always instructive to look at what goes up when the market is shrouded with negativity. On Monday and Tuesday as the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) dropped 1% — yes only 1% — Telstra Corp (ASX: TLS) gained 1.5%.The likely explanation for Telstra’s rise is the defensive characteristics of the business, making it a so called ‘safe-haven’ stock. Telstra’s revenues and earnings are dependable and maintainable; this flows through to a steady dividend pay-out, which is a great attribute for a business to have.
Source: Google Finance
Market drops highlight which companies investors truly have faith in. What’s more, these companies often have wide moats, which at the right price can be great additions to your portfolio. That doesn’t mean they need to be your only focus during a market sell-off however. Market falls can provide an opportunity to buy good (and sometimes great) businesses at sale prices. This is where investors want to be focussing their attention.
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 Tim McArthur does not own shares in any of the companies mentioned in this article.
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