It has been an eventful time in the stock market and I suspect that may continue for a while yet. Economic challenges such as inflation are growing, putting pressure on the ability of businesses to make profits. That has led to many share prices falling. Looking at my Stocks and Shares ISA, the total value is heading south due to such moves.
In such a situation, what should I do?
Take a step back
I think the first thing that can help me is taking a step back. It can be costly and even silly to make rash decisions based on short-term changes in share prices. Instead, I always try to look at the big picture.
My Stocks and Shares ISA contains a collection of shares I have bought at some point because I thought the businesses had attractive future prospects. Since then, the share prices may have changed – some of them moving dramatically lower. But has my assessment of the underlying business prospects also changed?
If it has not, then I see no reason to sell my shares. If I remain confident in the long-term business prospects of the company concerned, I can simply wait and hope that it will be reflected in the future price movement of the shares. Indeed, market volatility can actually offer me the chance to load up on shares I already own at a cheaper price than I paid for them before. I have been doing that lately with shares such as S4 Capital and Victorian Plumbing.
Changed investment case
But what if the share price fall reflects an underlying change in the investment case?
For example, I have shares of Lloyds Bank in my ISA. They have fallen 11% in the past year. I think that partly reflects investor concern that a worsening economy could lead to more loan defaults, hurting profitability at the bank.
In such a case, I do not think a falling share price on its own means I ought to sell. The question I ask myself is whether the shares continue to offer me potential value based on the investment case as it stands today. I think Lloyds is less attractive than it was a year ago. But for now at least, I think the shares continue to offer me value — so I continue to hold them. If the investment case gets much worse, maybe I will sell them.
Emotionless Stocks and Shares ISA
In other words, I am trying to take the emotion out of my investment decisions. I am not keeping shares because I like them, I feel embarrassed to admit I was wrong, or I am focusing on hope not facts.
Instead, I am trying to adopt a rational approach based on my reason to own shares in the first place, which is to try and improve my wealth over the long term. That can sometimes mean selling shares, even at a loss – but not just because their share price has fallen. By the same token, it can also involve using a greatly reduced share price as a buying opportunity for my Stocks and Shares ISA.