Therefore, before we even begin investing, we need to have the right mindset that we will be seeing negative numbers, or the red numbers in our portfolio at some point in our investing journey.
Short term price performance should never be used as the sole gauge as to whether an investment is a good one. Because the stock market can be pretty irrational in the short term, so anything could possibly happen to the stock prices. The key lies in whether we are making a good investment, or buying a good company for the investment. This is where having the right knowledge to understand the business of a company comes in. You need that to develop a strong conviction in the investment. When we do not understand what we are investing in, it is easy to give in to emotions like fear and panic when we see price declines.
For example, companies like Alibaba and Mastercard have been losing favour among investors because their stock prices have not been performing for the year. Some investors even said that Alibaba stock is just trash and we have some asking why Mastercard stock prices are not moving up. We should instead be focusing on the fundamentals of these companies, not the stock performance in the short term. Over the long term, these companies with solid fundamentals are going to be performing well. The moment you give in to the panic selling, you have already lost the battle.
In fact, even though Mastercard’s YTD returns for 2021 are almost flat, it is one of our top few performing holdings in our portfolio as we have employed our Moneyball stock investing strategy and with options play. This is why we have been emphasising that we need to have a bag of strategies in mind so that we know what to do under different market conditions.
As for Alibaba, we are still holding on to the stock, as covered in our YouTube videos on the China markets.