The next lesson to take away from the stock markets is that we should understand the companies we are invested in. This is what gives us conviction to hold on to the shares during times when there is a sell-off. Otherwise, you would have what we call the weak hands and you would sell your shares at a bad price.
There are a number of popular growth stocks which have come down by 20%, 30% or even more in the last 2 months. Or even as a whole in 2021, some of them did not do that well.
You know, the thing is, when prices are going up, you could be once so confident about the company’s growth and company’s future. But once the price declines, you suddenly start to question yourself. And you ask yourself, did you invest in the wrong company?
If you find yourself doing this, that means you do not actually have the conviction in the companies you are invested in. Or it could also be a case whereby your initial conviction was borrowed from someone else, like your friends or from the online forum.
When you do not understand what you are invested in, that is when you are very likely to be blindly led by the stock price movements. This is evident in the recent sell-off for the growth stocks where investors offload the shares because of whatever reasons there is, inflation, tapering, Omicron and so on.