Seemingly every avid gambler has a system -- a way to beat the odds, or at least make them feel smarter than the average bear. Traders feel the same way. They're buying dips and have strong convictions about what a company's share price will do after it reports earnings.
Investors understand that the stock market isn't a casino. If you're a buy-and-hold investor you're not looking for a hot streak or an angle, you're buying solid companies and giving your investing thesis years to play out.
Investors don't worry about short-term market moves. Image source: Getty Images.
Don't fear a market crash
When you're an investor, you own shares in companies you believe in for the long-term. Let's say Apple sees its share price drop by 20% because of general market sentiment about technology stocks or even because of something the company said during its earnings call.
If nothing has occurred that actually changes your long-term belief in the company, then you sit tight and wait it out. Lots of stocks that have made huge gains over the past decade have had periods where they also saw massive drops.
Carvana (NYSE: CVNA), for example, was once down as much as 61% during the March market sell-off. Shares have bounced back and as of mid-day on Sept. 9 were trading at $180.18, up dramatically from a 52-week low of $22.16, but still below the company's 52-week high of $235.
Those are scary swings and markets and stocks don't always recover as quickly as many companies have during the current pandemic. It can be very scary to see a company you believe in lose over half of its value, but you have to look at the why.
Carvana was hit by a short-term lack of demand for cars. The company has the cash to make it through the pandemic and demand will not only return but the company should appeal to car shoppers looking for post-pandemic value.
A trader who buys shares based on short-term ideas, predictions, or supposed research takes a bath when their bet proves wrong. Investors can simply wait until good companies climb back to previous values then leave them far behind.
Microsoft's climb has not been steady over the past decade. Image source: YCharts.
Patience wins
Above you see that shares of Microsoft have risen dramatically over the past decade. You can also see that there have been some major dips. Investors don't worry about those dips because their long-term thesis about the company has remained intact.
This chart isn't unique. It mirrors the performance of many other companies that have performed well over the very long-term. Short-term market moves are not predictable.
As an investor, you have the advantage of not having to worry about market crashes because you know that eventually, in most cases, good companies recover. That may take months or even years, but historically, it's what happens.