The stock market has taken a beating, with the technology and retail sectors having been especially hard-hit. Over the past 30 days, Tesla (TSLA) shares have dropped more than 25% while Target (TGT) stock has given up around 38%.
Those drops aren't isolated: Lots of former high flyers have plummeted over the past month (all prices are as of before the market opened on May 20):
- Costco (COST): -30%
- Microsoft (MSFT): -12%
- Netflix (NFLX): -19%
- Walt Disney (DIS): -17%
- Walmart (WMT): -25%
Those are huge declines for companies that had been continually strong. All have been hurt by macroeconomic factors. Target, Costco, and Walmart have seen their profit drop due to higher costs. Netflix, Walt Disney, and Tesla have been hit largely by general fears about spending (although Netflix may have a content problem).
Should You Be Afraid of the Market?
It's important to remember that stock prices do not always track company performance.
Target, for example, has dropped sharply because it did not meet analyst expectations for profit. The company explained why -- and rational investors accepted those reasons -- but it missed expectations and warned that inflation and supply-chain problems may be ongoing concerns. Short-term sentiment flipped out.
Costco might even be a more extreme example. It has not reported its most-recent quarter's results, but it gave an update on its April sales, which were up 8.7% when higher gas prices are excluded. The warehouse club also saw sales grow 11% through 35 weeks of its fiscal year.
Sales aren't the key metric by which to judge Costco. Investors should also track retention rates and membership growth. (Growing sales show high customer satisfaction, which generally tracks to renewal rates.)
Costco has shown no signs of weakness. Its numbers have been steadily strong and while it likely has had to deal with higher costs and supply-chain disruption, its core business remains unbelievably strong.
The lesson for investors isn't what a stock's share price does in the short term. That's often driven by news that does not actually speak to the underlying health of the company.
Costco makes its profit largely from membership sales, which have not slowed .Target and Walmart served more customers in their most-recent quarters.
Netflix may have slightly stumbled with its subscriber total falling (although it didn't when you factor out Russia), but Tesla, Disney, and Microsoft all have continued to grow their businesses.
In the long-term do you question whether any of these companies will be among the leaders, if not the clear leader, in their space?
You might question the long-term prospects of one or more of these companies based on market conditions, leadership, or recent results. That could be a reason to sell or not buy, but that's very different from passing on a stock (or bailing on it) because of short-term news.
Should I Buy Stocks Now?
Long-term investors want to own shares in companies they believe will perform well over time. That's because while actual performance does not generally dictate short-term share price, it does (usually) generally track to results over years rather than quarters.
If you believe that Costco, Target, Walmart, Tesla, Microsoft, Walt Disney, Netflix, or any other stock has been built for long-term success, then you can buy shares right now at a discount.
That does not mean, however, that share prices won't drop further. It's impossible to predict the bottom of the market. If you wait for lower prices, you often miss your opportunity to buy.
Down markets often drag down companies that are fundamentally sound with great prospects over the next few years or longer.
Selling shares of good companies that you believe in makes no sense. Hoping to buy back in at lower prices is a risky game. Instead, have resolve. Use the market conditions to your advantage, and dollar-cost average with more shares in good companies.
Further, avoid the temptation to endlessly check your portfolio. You're not investing for today. A long-term view requires, well, a lot of time.
Track your companies and watch for big things that shake your faith in your thesis -- your reasons for owning the company -- but tune out market noise and keep your eye on years from now, not today.
