Stocks have been hit hard, with the tech and retail sectors being hit especially hard.In the past 30 days, Tesla (TSLA) – Get Tesla Inc report Shares fell more than 25% while Target (TGT) – Get Target Company Report Shares have fallen about 38%.
These declines are not isolated: Many once-high-priced stocks have plunged over the past month (all prices were before the market opened on May 20):
These are huge declines for a company that has remained strong. All are hurt by macroeconomic factors. Profits at Target, Costco and Walmart fell due to higher costs. Netflix, Walt Disney and Tesla have largely been hit by widespread concerns about spending (although Netflix may have content issues).
Should you be afraid of the market?
It’s important to remember that stock prices don’t always track company performance.
Target, for example, fell sharply after it missed analysts’ profit expectations. The company explained the reasons — rational investors accepted them — but it fell short of expectations, warning that inflation and supply chain issues could be lingering problems. Short-term sentiment reversal.
Costco might even be a more extreme example. The company has yet to report results for its most recent quarter, but provided an update on its April sales, which rose 8.7% if higher gasoline prices were not included. The Warehouse Club also saw an 11% increase in sales in the 35 weeks of its fiscal year.
Sales are not a key metric for judging Costco. Investors should also track retention and membership growth. (Growing sales indicate high customer satisfaction, which is often related to renewal rates.)
Costco showed no signs of weakness. Its volumes have remained strong, and while it may have to contend with higher costs and supply chain disruptions, its core business remains incredibly strong.
The lesson for investors is not what happens to a stock’s share price in the short term. This is often driven by news that doesn’t actually say anything about the underlying health of the company.
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Costco’s profits mostly come from membership sales, which haven’t slowed. Target and Walmart have served more customers in recent quarters.
Total Netflix subscribers may have dropped slightly (though not excluding Russia), but Tesla, Disney, and Microsoft are all continuing to grow their businesses.
Would you question whether any of these companies would be a leader in their field in the long run, if not a clear leader?
You may question the long-term prospects of one or more of these companies based on market conditions, leadership, or recent performance. This may be a reason to sell or not to buy, but it’s very different from flipping (or giving up) a stock because of short-term news.
Should I buy stocks now?
Long-term investors want to own stocks in companies they believe will perform well over time. That’s because while actual performance doesn’t usually determine short-term stock prices, it (usually) typically tracks multi-year results rather than quarterly results.
If you think Costco, Target, Walmart, Tesla, Microsoft, Walt Disney, Netflix, or any other stock is built for long-term success, you can buy shares at a discount right now.
However, that doesn’t mean the share price won’t fall further. Predicting the bottom of the market is impossible. If you wait for a lower price, you tend to miss out on buying.
A down market usually drags down companies with sound fundamentals and promising prospects for the next few years or more.
It doesn’t make sense to sell stock in a company you believe is good. Hoping to buy back at a lower price is a risky game. Instead, be determined. The average dollar cost of using market conditions in your favor and owning more shares in good companies.
Also, avoid the temptation to check your portfolio endlessly. You do not invest today. Taking a long-term view takes a lot of time.
Keep track of your company and keep an eye out for the big things that shake your confidence in your thesis—the reason you own the company—but cut out the market noise and focus on a few years from now, not today.