What Tom Gardner Said About Days Like This
Yahoo Finance ·
If you opened your portfolio today and winced, you're in good company. As of market close, the S&P 500 was down 4.36% and the Nasdaq 5.52%. If you own a lot of growth stocks, your account probably fell harder than that. Back in September, Tom Gardner sat down to record his sixth Quarterly Call, and he spent a good chunk of it on days like this one. He didn't predict today. Tom doesn't make market calls, and he gave "a mild wrist slap" to people who make spectacular ones. Instead, he explained why a drop like this shouldn't catch a Fool off guard and what to do when one arrives. Here are five ideas from that call worth rereading before you touch the sell button. Tom reminded us that the S&P 500 has historically fallen 10% about once a year. A pullback of 10% to 15%, he said, is "par for the course." Think of it as the toll you pay for decades of stock market returns. He also argued the odds of a pullback were higher than usual when he recorded the call. The S&P 500 and Nasdaq were trading 10% to 30% above their typical historical valuation ranges. When stocks are priced for good news, it takes less bad news to knock them down. And he warned that when the index falls, the high-growth, high-beta stocks many Fools own tend to fall further. High beta means a stock swings harder than the market in both directions. So if your portfolio is down more than the S&P 500 today, that's the trade-off Tom told us to expect. "Emotional reactivity is the enemy of wealth creation," Tom said. A red day tempts you toward the dramatic move: Sell everything, or back up the truck.
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