The Bank of Japan announcing an interest rate increase and the US reporting 4.3% unemployment have caused global share prices to fall. And the stock market is a volatile place at the moment.
Yet for investors looking to buy stocks for the long term, I think there’s more to be optimistic about than to be afraid of. If the downturn in share prices continues, a big opportunity could be on the way.
Sell?
Apple (NASDAQ:AAPL) is a good example – I own some of the stock and it fell around 10% as share prices across the board came down. The obvious question is what should I do?
It’s tempting to sell to try and avoid further losses. With Warren Buffett reducing Berkshire Hathaway’s stake in the company, there’s definitely a chance the share price could keep falling.
There are a couple of problems with selling though. One is that I’d like to own Apple shares for the long term – I think the company’s earning power is likely to make the stock a good investment.
Another is that the best days for share prices often follow the sharpest declines. This means the cost of missing out on a potential quick recovery could be high and selling brings a significant risk of this.
Buy?
Given this, it’s natural to wonder whether I ought to be buying the stock to be greedy when others are fearful. With the share price down, is there an opportunity to add to my existing investment?
Buffett might be selling the stock, but that doesn’t automatically mean I should do the same thing. There are several reasons selling might make sense for Berkshire that don’t apply to me.
The Apple share price has gone from $219 to around $200. Whatever happens over the next 25 years or so, it’s hard to see how I’d get a better result buying it at a higher price.
It’s worth keeping the decline in context, though. The stock traded at $200 as recently as June, so it’s hard to see the fall in the share price as a once-in-a-decade opportunity or anything of the sort.
Hold?
I’m looking to bide my time with my investment in Apple. If share prices keep falling and the current downturn develops into a stock market correction (or crash), that might change.
I still think the business is in a great position for the long term. The popularity of the iPhone makes the company a gatekeeper to some of the most desirable customers for app developers.
Antitrust legislation is probably the biggest risk to this. While I think it’s unlikely another firm might disrupt Apple, a government might be able to do this.
I’m not convinced today’s prices adequately reflect this risk, so I’m not looking to buy the stock right now. But if it falls further, maybe I will.
Stock market volatility
It’s worth noting that global events impact local share prices. Raising interest rates in Japan have caused the yen to strengthen. As a result, traders who borrowed in the Japanese currency to buy US stocks are having to sell as the value of their investments fall.
It’s impossible to know with certainty what will happen next. But the lower share prices go, the more attractive they become to me from a buying perspective.
