Get Smart: From Diamond Hands to A Winning Hand

2021-03-16     thesmartinvestor
Get Smart: From Diamond Hands to A Winning Hand

The NASDAQ index fell by over 11% from peak to trough recently.

If you were thinking of picking up some stocks on the cheap, you might be on the hunt now.

But first, you have to find the right companies to buy. Even then, it’s not enough.

Anyone can find good stocks.

Buying it takes just a few taps on your smartphone.

But not everyone has the tenacity to hold on to a good stock for the long term.

The reason?

Because it’s not easy. It’s hard.

How hard?

Well, even the best-performing stocks over the last decade have undergone periods of time when their stock prices go into a tailspin.

And we are not talking about minor, single-digit percentage declines, mind you.

We are talking about stomach-churning stock dives.

Take Netflix (NASDAQ: NFLX).

I have owned shares of the online streaming giant since January 2007.

Along the way, the share price has fallen by over 30% from its peak multiple times.

But if you bailed on Netflix when things got rough, you would have missed out on a huge winning stock that has gone up by over 150 times over the last 13+ years.

For a different take, look no further than a local REIT, ParkwayLife REIT (SGX: C2PU).

Total returns from the healthcare REIT, which include distributions, are in excess of 650% since I bought units in April 2009.

Units of ParkwayLife were far less volatile compared to Netflix.

But it doesn’t mean that it was smooth sailing all the way.

Along the 11-year stretch, there were bouts of downturns and sideways unit price movements.

The two stocks are different in nature but for the investor, it points to the same conclusion.

If you plan to make money in the stock market, get ready to hold.

With diamond hands.

A gem in the midst

The term “diamond hands” comes from the Gamestop (NYSE: GME) saga.

Redditors that participate in the WallStreetBets (WSB) forum created their own lingo to communicate and cheer one another on.

To be sure, I am not suggesting that you jump headfirst into the Reddit forums.

But I do like the idea of holding good stocks for the long run.

Along that vein, the WSB term “diamond hands”, or the ability to hold good stocks through thick and thin, warms my investor heart.

But it’s not like we are about to grow gems on our hands.

And it’s not like we can simply put aside our emotions while we invest. After all, it’s our hard-earned money on the line.

We need a better way.

A framework for your diamond hands

The good news is that keeping our wits about us when the market plunges may not be as difficult as it looks.

All we have to focus on is that we are able to keep holding our stocks and not pull our money out at the wrong time.

We need a framework that enables us to do so.

At The Smart Dividend Portfolio, we have been teaching about the importance of getting your basics right before you invest.

The suggestions we made are not hard to follow.

For instance, create your own emergency fund or a sum of money that you set aside for rainy days.

The key here is to park these funds in a place you can access when you need it most.

Returns should not be the priority for your emergency fund.

Instead, this money set aside should act as a safe harbour — as close as a guarantee that you can get that your money will all be there when you need it the most.

But why is an emergency fund important?

Simply said, when stock markets are crashing, you don’t want to be selling your stocks.

These funds set aside will help you tide over uncomfortable financial moments so that you can keep your stocks untouched.

The other approach is to hold dividend-paying REITs such as ParkwayLife REIT.

The healthcare REIT is one of the few that have sailed through 2020 without reducing its distributions. In fact, ParkwayLife REIT increased its distributions per unit (DPU) by a solid 4.5% year on year.

In short, REITs have the potential to provide you with valuable income when you need it the most.

Now, some REITs have delayed their distributions during the circuit breaker.

But most have started to restore the DPU payouts as the economy recovers.

Get Smart: From diamonds hands to winning hands

You need to find your own place where you can be fearless when buying — and crucially — holding stocks for the long term.

Because if you pick the right stocks, you can stand to gain significantly.

And that’s what we do at The Smart Dividend Portfolio. Buy the right stocks.

Our guidance does not end with just teaching you how to find good companies.

As we said, buying stocks is easy.

There is also the art of buying the right amount of the right stock.

And of course, holding them through thick and thin. That requires patience and guidance on how to recognise opportunities, analyse the situation when things head south, and pick the right course of action.

And most of all, how we keep a sane mind while the stock market plunges.

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Disclosure: Chin Hui Leong owns shares of Amazon and Netflix.

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