Stressing over decreasing share values?

Managing
December 6, 2018

So, you’ve just brought some shares. You’ve done your research and you were comfortable with the company’s activity and share price. You’re checking them constantly to see. You want the company's share price increase in value. Suddenly your shares decrease in value and you see the value of your overall investment take a dive. Your stomach flip flops and ties all sorts of different knots. You try to suck it up – “it’s not that bad” you tell yourself. But you can’t stop thinking about it. You’re checking the price every hour or so to see if the share price has increased. And you’re starting to doubt yourself. Should you sell at a loss? Or wait (and potential lose more)?

This sort of stress affects more than just the value of your shares. Worries about whether you’re actually going to lose all your hard-earned money clutters your thinking, and affects your feelings, behaviour and ultimately your health.

Stress like this can feel like a threat to our survival.

I get it.

We get into some number-crunching now, so if your eyes generally glaze over at this point, don’t worry. Finappster can help you keep track of your NZ and Australian shares (watch this space for US shares). Sign up now, or, if you’re actually interested in this stuff, read on.

A few years ago, I purchased my first shares just after I left Uni. It was in June and they were Sky City (casino) shares. I used to work in a casino, and armed with the knowledge that ‘the house seemed to win more often than not’ thought buying shares in Sky City would be a ‘safe bet’. I brought:

1,000 Sky City shares * $3.25 (cost per share) + $30 (cost to buy) = $3,280 (total value of purchase).

Whenever I saw a sharemarket ticker tape I would look for Sky City’s stock code “SKC” and the price to see how they were doing. All was fine to start with. When it went up $0.05 cents I did a mental calculation in my head:

1,000 SKC shares * $3.30 (cost per share) = $3,300 (total market value of shares).

I had made $20! But I couldn’t sell them yet, because I wanted to make some money off them, and selling them would cost me another $30. So I waited.

For a while the price didn’t really move. But then it started going down. I told myself “it’s ok – I‘ve only lost the $30 it cost me to buy them”. And then they went down even more.

A little voice in my head kept saying if only I’d left it in my savings account, it would be earning meagre interest, but it wouldn’t be decreasing… arrrgghhhhh!

Compounding this situation was the fact that I was currently out of work. I was looking for a job but I didn’t currently have an income. Not only were my whole life savings sitting in an investment that was decreasing in value, but this meant I also had more time to stew over how bad anidea this was becoming.

Amid the myriad of thoughts I was having on this was that if I sold now, I would minimise my losses. Sure, it would cost me another $30 to sell them… if I could sell them. I read up on this. Articles were stating Sky City was blaming the exchange rate, the expenditure of other casinos in the Sky City family of casinos, the fact that fewer people went out in winter and therefore fewer people were going to Sky City…

Despite all this, they announced a rather massive annual profit at the end of their financial year (in September) and I got a dividend payment of $0.065 per share. The share price increased to $3.61 per share (wa-hoo!). I took the money and sold those shares.

For my stresses, my gross profit was $365. That’s:

1,000 SKC shares * $3.61 (cost per share) = $3610 (total market value of shares) + $65 (dividends) - $30 (cost to sell) = $3,645 (total value of sale);

$3,645 (total value of sale) - $3,280 (total value of purchase) = +$365 (gross profit) or 11.13% gross return on investment.

I realise the stress I felt during that time was minor compared with the stress others have to deal with day in and day out. Yet, the fear and helplessness of my situation gave me enough insight to recognise how easily it got me down.

Four ways to help mitigate your stress

1. What did you want to get out of this?

My original thinking when I brought these shares was that this was the first purchase in the start of my own share portfolio. This was obviously a long-term ‘buy and hold’ view.

I know now that if I had stayed true to this, I shouldn’t have stressed so much because share prices increase and decrease on a daily, even hourly, basis.

2. Do your research properly

Find out as much as you can. Knowing the ins and outs of how a casino operates does not necessarily relate to its share price performance. In my research I now look at other factors. In relation to Sky City factors I would address are how the entertainment / casino industry is performing both here and overseas, whether there are subsidiaries and what activity they have planned, company information, share price chart information... and it goes on.

Talk about it.  Simply talking about this to others brings some degree of clarity. Talking to a trusted friend, family member or online community where you can discuss your questions and concerns can be invaluable.

Learn about shares / investing. Check out books at the library, read online personal investor blogs (like these blogs, or Ryan Johnson's 'Money for Young Kiwis') and ask questions of those who have the knowledge you are seeking.

Get advice. Qualified financial advisors can help you decide if investing in shares is right for you, and also help you determine what shares might be good to buy. But, be aware these professionals may be compensated for the financial products they “sell”. Consider a fee-only adviser that works on an hourly, as needed basis (rather than commission).

3. Create some rules for yourself

Stuff will happen that’s beyond your control, but you can still decide how you react. I didn’t know this then, but now, before I buy any sort of investment, I write down some rules on what I’ll do in certain situations. For shares:

  • ‍If the share price decreases 30% I’ll sell.
  • ‍If the share price increases 30% I’ll sell.
  • ‍If I hear of a merger or some other company activity likely to change the share price, I’ll likely sell.

30% might sound like a lot, but after years of trial and error I’ve figured that’s the maximum level I’m comfortable with losing and gaining before the doubts and little voices in my head kick in. I find sticking with these rules helps take the stress out of share price volatility. Obviously, it would be great to gain more, but at that point I know I’ll have made my money back and a little bit more.

Writing them down makes me feel more accountable to them. Sometimes I also tell my friends, who also hold me accountable to these rules as well.

4. Change the voices in your head.

Change “what if” to “are any of my rules likely to be applicable today? And if they are, should I get ready to sell them”.

Last thoughts

Finally, reading investor success stories online and using them as inspiration helps. Robert Kiyosaki, author of Rich Dad, Poor Dad, is an advocate of taking control of our financial futures and talks simply about how you can do it. If you like his approach you can mimic it.

Perseverance, along with a positive attitude, will eventually result in success…and less stress.

If you've read all the way to this point, well done. You should definitely sign up to finappster to help you keep track of your share portfolio.

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