3 things the smartest investors do when the market is crazy

They stay focused on the long term and act accordingly.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With inflation running high and the global economy in disarray, it doesn't exactly seem like a great time to be investing in stocks. After all, the market has already lost almost 14% of its value this year, and its near-term future is extremely uncertain. 

But if there's one thing that the smartest investors know, it's that craziness in the market isn't an excuse to sit on the sidelines. For them, it's a call to take calculated actions to support their portfolio's value in the long term. In particular, there are three things they'll be doing right now and in the coming months to make sure they come out on top.

1. Stay cool even when favorites are down

Perhaps the most important thing that the smartest investors do that average investors often don't is that they keep their wits about them when their positions aren't going their way. It's easy to say that people shouldn't panic sell, but, when you're faced with your hard-earned money trickling away, it's also quite easy to get rattled. And once that happens, they tend to start thinking about selling their shares, even when it'd be at a loss, and even when the losses might go the way of the dodo with enough patience.

To make matters worse, when investors sell their shares at a loss when the market is unstable, it's often without considering whether their investment thesis is still valid, which is also generally a poor practice.

For example, both Intuitive Surgical (NASDAQ: ISRG) and Costco Wholesale (NASDAQ: COST) have fallen this year so far, with Intuitive losing 36% and Costco dropping by 5%. But both companies are still profitable, and they've grown their trailing-12-month revenue by upwards of 40% over the last three years.

More importantly, neither has changed anything fundamental about their business model nor have their operations been directly impacted by the ongoing market volatility. Intuitive Surgical is still making robotic surgical systems, and Costco is still selling bulk consumer goods and groceries out of its warehouses. The same forces driving their growth before the bear market are still in play today, and smart investors know that there's a good chance the pair will recover over time due to consistently reporting favorable earnings, just like before. 

2. Build on high-conviction positions

In keeping with this theme, another thing that the best investors do is to buy more shares of their favorite companies even when the future is uncertain. After all, if your investment thesis still holds up, why not take advantage of dips and add to your positions? 

Take Intuitive Surgical, for example. At the core of the company's appeal to investors is that for each new da Vinci surgical suite that it installs in operating rooms worldwide, it gets a years-long stream of revenue from sales of maintenance contracts, training packages, software, spare parts, and updated surgical tools for the robots. And when its customers use their surgical suites for more procedures, they tend to need more of the services and accessories, so it also benefits from the growth of healthcare systems.

As a result of that razor-and-blade business model, around 75% of the business's revenue was from recurring sources in 2021, a proportion that is slowly increasing over time.

Does turmoil in the market affect any element of Intuitive's narrative? No. So, while the smartest investors would probably check whether any other important factors are eroding their investing thesis for the stock before buying more shares, they ultimately wouldn't be shy about adding to their position here. 

3. Buy bargains or likely future winners from watch list stocks

Most skilled investors maintain a watch list of stocks they'd like to buy. Then, during volatile periods in the market, they look for opportunities to start new positions in the stocks they're watching, either for the right price or due to positive shifting in economic phenomena. At the moment, inflation is the economic phenomenon du jour, so one thing that smart investors might be on the lookout for are businesses that stand to benefit from it.

Costco fits that bill quite well. Since the wholesaler's reputation rests on it providing its members with the lowest-cost goods around, if consumers are feeling the pain of inflation, they're unlikely to do much better than to keep buying its products. Furthermore, if other retailers end up hiking prices faster than Costco, it's plausible that it'd grow at a quicker clip than normal.

Per its June sales results for this year so far, Costco's revenue was 16.9% more than the same period in 2021, so that trend might actually be happening. In other words, if the stock were on a smart investor's watch list, they'd likely be willing to buy some shares at a somewhat higher price than usual when bargain hunting. And in the long term, that'd help them to secure strong returns, as opposed to investors who were too spooked to move into an attractive stock at a better price than last year. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Alex Carchidi has positions in Costco Wholesale.  The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Costco Wholesale and Intuitive Surgical. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

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