The stock market is not a fan of uncertainty. News of missed earnings targets, shifting consumer preferences, or global events can send prices tumbling. Remember the sharp declines of Netflix, Meta, and Adyen when faced with their own challenges?
Yet, these same stocks have since roared back, illustrating a crucial distinction: uncertainty is not the same as risk.
Savvy investors understand this difference. They recognize that periods of high uncertainty can create opportunities. When fear drives prices down, fundamentally strong businesses may become undervalued.
The key during uncertain times is to start applying second-order thinking. As investors, we must think beyond surface-level impacts:
1. Look beyond the headlines. Don’t just react to the initial news. Dig deeper to understand the underlying causes and potential long-term impacts.
2. Assess a company’s resilience. Can the company adapt to the challenge? Does it have a strong track record of overcoming obstacles?
3. Expand your time horizon. What would things look like in 5 weeks, 5 months, and 5 years? Would the challenge they’re facing today still be relevant?
Investing is inherently about the future, and by extension, it will always involve some degree of uncertainty.
However, one thing is certain: when prices are low for wonderful businesses, they become less risky investments. Even modest improvements in a company’s circumstances can translate into positive outcomes for investors who have the patience and perspective to see beyond the storm.
Compound steadily,
Thomas
P.S.
Earlier this year, Tesla faced significant challenges, becoming the worst performer among the magnificent seven as its stock plunged over 40% to $139. On April 19, I published an exclusive report for Steady Compounding Insider Stocks members, explaining why I believe the market has overreacted and that these challenges are temporary.
I’ve removed the paywall from this report for the next 3 days only.
>> Click here to read “What’s going on at Tesla?”
P.S.S.
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