Happen to catch Mr. T on Squawk Box yesterday. Always good to see him. To me his crowning glory moment came when he was asked for his prediction for his upcoming fight in Rocky 3, and he uttered one single word: "pain."
I happen to think of this succinct moment of cinematic brilliance when a tweeter said that he was getting his butt handed to him in Action Alerts Plus holding Facebook (FB) and he couldn't handle the pain of these "huge" losses.
I wanted to sentence him to watching several full-length Mr. T dramatic expositions because, frankly, if you think that what is happening in Facebook is painful, then you should leave the table right now, before you actually experience some real pain.
First, this is not a piece about the coming apocalypse. We have apocalyptic masters everywhere these days; you don't need me to be part of the Apocalypto, a fine film by Mel Gibson, his best even, although I just like to appropriate the term to fit the doom-saying chorus I hear every day.
This is not a piece about what happens when the Fed tightens. There's already a well-defined end-of-the-world sense about that event, too. While I would prefer that the Fed wait until other currencies get stronger, I accept the judgment that it is going to occur, and am making my peace with it by suggesting stocks that will work, like the health care cohort, once the Fed gets the ball rolling.
No, this is a piece about tolerance, because let's say you somehow picked the absolute worst moment to buy Facebook, which was March 21, at $85.31. You are simply not down that much and you have to be able to take that pain if you are going to own stocks.
Let's deconstruct what's the source of the pain. First, "huge losses?" Hardly. Unless you cash out today, you don't have huge losses. You are down on a position of a company that, if everything works out well, could earn $3.50 in 2017. Is that expensive at 23x that amount, given how fast Facebook is growing? I would certainly say not.
But you know what would make it even cheaper? If the stock went lower and you could buy even more. The problem, though, is that if you adopt that pain mentality, you will be a seller when it gets, say, to 20x earnings, rather than a buyer. A losing mentality is a mentality that is best left out of the stock market. It's good if you are in cash.
Second, a five-point drop on a $80 stock -- and, again, I am presuming the worst possible moment of buying -- just isn't that much of a hit. If you think it is, please run now, because there isn't enough oxycodone in the world to handle what you feel if this stock goes to $70.
Will it? If you shudder that it could, again, sell. Why? Because this market's not trading as much off the fundamentals of earnings as it is about the fundamentals of the Greek talks, and unless there are takeovers or big restructurings Facebook could easily sell at $70 with this exact same set of circumstances at the company that we have now.
In other words, part of the process of owning stocks is pain tolerance. If it hurts too much, don't look every day. If that doesn't help, then sell. Owning stocks is a leap of faith. You have to believe that things will get better at the company you own, at the stock market it is in and in the world in general.
That's a tough road to hoe. It's happened quite often, but the only people who stay on the road are the ones who can handle what Mr. T dishes out. If you can take the punishment, welcome aboard. If you can't, sell now. Because you never know when real pain might strike, even, if the end, the pain, like the irrepressible Mr. T, goes down for the count.