The market is under severe pressure again this morning as it awaits a press conference with President Trump and the FDA. There is no big mystery about what is going on - there is tremendous uncertainty about the coronavirus and its impact on the economy. The market hates uncertainty and there has never been more of it than there is now.
When the market undergoes action of this type there are always folks that rush to buy the great 'bargains' that are being created. It is an understandable reaction but it is an emotional response that can do great harm if you fail to appreciate that stocks may go far lower than you think is possible.
What most buyers overlook is risk and how you can better control it. They argue that this is a great stock and it will do fine in the long run but they don't appreciate how they can do even better if they develop a strategy that takes into account that the downside momentum may continue for a while.
The first thing to do is to get over the feeling that you are going to miss out if you don't buy into the teeth of a decline. Even if you think that the market is making a 'generational low' you can do very well, if not better, by buying after the action improves. You don't have to predict a low. In fact the harder you try the more likely you will rack up some hefty losses before you are eventually correct.
I'm going to use Disney (DIS) as an example of a stock that I may like to hold for the long term. At some point, this coronavirus crisis will run its course and Disney's business will return to normal. I don't know when that might be but it is a near certainty.
The way to handle Disney is to not look at the chart right now and think 'Wow, it is down 40% and must be a bargain'. The valuation of it is irrelevant in this sort of market. What is relevant is the emotion and the fear. You want to start buying Disney in bigger size when that emotion shifts and the price action also shifts.
The second key to building a position is to forget the idea of trying to buy it at its absolute low. It is far more important to focus on trends rather than turning points. Disney will make a strong run when there is more certainly out there and that is what you want to catch.
The key is to stay vigilant, resist the urge to buy because 'it's down a lot', wait for positive action and don't worry about predicting the low point.
Currently, I have a token position in Disney which is just to make sure that I watch it closely. I have no interest in adding to the position right now and do not care if I miss buying it at the low point. I will only add when the market action improves. I don't know when that will be and the stock could be higher than it is now but that is irrelevant.
Your capital is the most important thing you have. Treat it with great respect.