Sellers Beware: Prices Also Rise

Recent market action has been among the worst I've experienced in my 44 years of trading. There has been an almost total disconnect between company fundamentals and share-price performances. That is when your faith in the system you employ gets truly tested. Is everything you always believed in no longer true? Could the news really be bad enough to justify people puking up their stocks and giving up? It can be easy to think that when things get this crazy. Acting like most other traders are doing almost never ends well, though. Two history lessons can help you keep your sanity, while preserving your ability to bounce back to profitability. Back in 2015, American Express walked away from its largest single contract with Costco after failing to accede to the terms that Costco was dictating for renewal. Investors dumped the shares thinking AXP would never make great profits again. Headline and after headline had ripped AXP's future prospects. The shares started to sell off immediately after the news broke in October of 2015. When the entire market got off to its worst start to a year -- until 2022 -- AXP plunged even further. From its 2014 peak of $96.20 to its February 2016 nadir, AXP fell by almost 48%. Ouch. When the S&P 500 began recovering AXP bounced a little but mainly went sideways until September of 2016. Then, Motley Fool wrote in June 2016 a story criticizing management. It would have been easy to sell the stock when everybody was bashing it and saying it had poor future prospects. Those who did made a horrible mistake. From AXP's mid-February 2016, low through its pre-Covid peak of $138.10, the stock surged by almost 175% plus dividends. Pandemic-related pessimism then drove the stock down by over 51% in just three months. There were plenty of real problems going on back then. Once again it would have seemed rational to dump AXP. Once again it would have been a major investment error. Buyers near that low, or those who were long and simply sat tight, watched AXP rally by over 197% plus dividends to its 2022 peak of $199.55. AXP got hit hard this year like most other stocks. It fell 23.4% from its January peak to as low as $152.85 intraday on Monday. One day later, near midday, AXP had recovered almost $7 per share. Selling at the bottom is stress relieving, as you no longer have to worry about it going lower. But it is almost always self-defeating when the shares bounce back even more percentage-wise than they declined. Dick's Sporting Goods is another stock with a long history of scary, sharp declines followed by monster rallies. DKS reported better-than-expected results for its fiscal fourth quarter on Tuesday. As of 11:56 a.m., it was up 3.77% from the previous day's close and more than $6 from its recent low of $97.12. The data below highlight Dick's last four major selloffs. Those percentage declines were by 44.6%, 62.0%, 72.9% and 34.1%. Each had valid reasons at the time. Those who sold in disgust missed huge rebounds that provided large recoveries that far exceeded the drops. The horrendous Covid-related 72.9% plunge would have been hard to take. DKS's next 18-month gain of 991.9%, though, more than made up for the agony for those who simply held on. Traders who bought when things looked the worst made life-changing profits. Some of my favorite stocks have been driving me crazy as record results failed to prevent major declines. I've been averaging down on the four shown below as they got inexplicably cheaper and cheaper. As of 1:15 p.m. on Tuesday they were up from 6.57% to 14.15% since the previous day's close. When negative factors fade you'll often see rip-your-face-off rallies. The worst things traders can do in times of great stress is to buy puts and/or short stocks that are already very depressed. The second worst thing is to throw in the towel close to the very bottom. Nothing rips your heart out like exiting stocks you loved at horrible price points only to then see them go to exactly what you really thought they were worth. Trade accordingly.

Sellers Beware: Prices Also Rise

Don't be fooled into selling just to get a dropping stock off your mind.

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