The Call of the (Market) Wild

By: Elliot Ries

Has your portfolio taken a hit recently?

You're not alone. The market has recently seen a sell-off in recent weeks, and stocks that were especially strong during the pandemic are being hit particularly hard. It mostly has to do with rising interest rates. In simple terms, bonds are becoming more attractive to investors, and they're having to choose more carefully about how they allocate their money.

And many stocks have been hammered. The major securities that have been adversely impacted are those who have high-valuations that are built on high future earnings, low future interest rates and are extremely volatile. I am talking about stocks like Tesla, Paltatir, DoorDash, and Snowflake.

If your portfolio is hurting, remember that you should be investing for the long-term. Those who are patient are the ones who will, in all likelihood, ultimately benefit from the market's long-term upward trajectory.

Investing isn't a one-inning game.

That doesn't mean you should stay away from popular stocks, but make sure you are aware of the potential downsides. Think of Tesla, for example: a company that appreciated by 695% in 2020, but saw its sales grow by 28.3% last year. With Tesla, a company that trades at a very high price, its value comes from the fact that investors have high expectations for the future. 

Think of Tesla as a college quarterback who went from not even sniffing the NFL to the first overall pick in the draft.

Tesla now has high expectations to achieve and maintain its current price. This is a risk for potential downside if Tesla is not able to achieve their expectation of future success. 

But back to what you can do in a wild market: Review your current positioning to ensure you are tempering your risks. Diversification is the easiest way to prevent high-risk within your portfolio. And make sure to have a long-term perspective, and be patient. With time, the market should work in your favor.