Image source: Getty Images
By the time today’s (4 April) closing bell rings on the New York Stock Exchange, more than a few brokers will breathe a sigh of relief. It has been a dramatic week in world stock markets with the US’s tariff plan leading to high volatility for some leading UK shares among others.
Seeing a dramatic swing in share prices can feel unsettling.
Here are two things I think investors could do well to bear in mind.
A paper loss is just a paper loss
When stock prices fall and the valuation of an ISA or portfolio goes down, it can make for a sobering read.
Suddenly a valuation readout may be noticeably lower than it was before.
But an investor does not make a capital loss (or gain) on an investment until they sell it. For many investors there is no obligation to do that – or anything. They can simply sit on their hands and wait.
As a long-term investor, when the price of a share I own changes but its investment case does not, I will often simply hang on to it and ignore the short-term market noise.
Meanwhile, for income shares I own, dividends will hopefully keep piling up!
A stock market tumble can offer a great buying opportunity
If I have spare cash on hand to invest, a sudden drop in price may offer me the opportunity to load up on a share I want to own at a more attractive price than just days before.
For example, I own shares in US-listed shoemaker Crocs (NASDAQ: CROX).
They ended yesterday down 14%. That sort of share price fall in a short time is known as a correction. At one point during the day’s trading, however, they had fallen over 20% in a matter of hours. That level of decline in a short time, if seen across the wider market, is a crash.
It remains to be seen whether the US is headed for a full-on stock market crash in coming weeks following yesterday’s dramatic trading day.
But what is clear is that buying more Crocs shares yesterday would have been a lot cheaper than the same trade just one day before.
As a global company with complex international supply chains, additional costs could eat into Crocs’ profitability.
I reckon the same thing is also true of competitors in the company’s key US market, though. People will still need to buy footwear, so companies like Crocs could likely shift higher costs to consumers in the form of increased retail prices.
Meanwhile, the stock sells on a price-to-earnings ratio of just 6, despite having a hugely popular brand, proven business model and being highly cash generative.
I like Crocs shares so much I already own quite a few, so to keep my portfolio diversified I decided not to scoop up more at a lower price this week.
But I was sorely tempted! Amid market turbulence I will keep looking for other such potential bargains…
