3 steps I’m taking to protect my investments in uncertain markets

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.

UK and US stock markets have fallen sharply over the last month. Today I want to explain the steps I’m taking to protect my investments in these uncertain market conditions.

As a long-term investor, my top priority is to protect my capital from permanent losses. Market volatility is a fact of life, but if I’m invested in good businesses then I can afford to be relaxed about falling share prices. Over time, I expect my businesses to become more valuable, driving their share prices higher.

#1: focus on what matters

The first thing I do to protect my investments when markets are falling is to protect myself from the risk of making bad decisions.

If I tried to follow every bit of market news and every share price movement, I’d be a nervous wreck. I’d probably start to make bad decisions, abandoning my investment process and giving way to emotional thinking.

To protect against these risks, I ignore most market news. I don’t check the share prices in my portfolio every day. I don’t bother too much about what the FTSE 100, S&P 500 or Nasdaq indices are doing.

The only news items I do follow closely are trading updates and financial results from the companies where I’m invested. Doing this helps me to stay focused on the real performance of my portfolio.

#2: do (almost) nothing

From what I can tell, there’s a good chance that the UK and some other major economies are heading for a recession. Naturally, this is uncertain. But if it happens, it will probably affect some of the companies I own.

Some of my shares will probably report slower growth, or even a fall in profits. If that happens, what I’ll do is to take a fresh look at the business.

How is the company handling tougher markets? Are its finances still strong? Can profits bounce back quickly?

Most importantly, does my long-term investment story for the business still make sense?

If the answers to these questions are mostly positive, then I’ll keep holding. The only thing that makes me sell a share is if I think the story has changed — or if I realise I may have made a mistake with my original investment.

#3: keep buying

One of Warren Buffett’s best-known quotes relates to buying shares during market crash:

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

Stock market history tells us that the majority of share price gains take place on a small number of days each year. I don’t want to miss out on these gains by sitting on the sidelines in cash.

If I feel that shares are offering good value and may be cheap on a long-term view, then I’ll buy, regardless of what the market is doing.

This is the approach I took when the market crashed in 2020, and it worked very well.

I don’t expect another crash like 2020 in 2022. But whatever happens, I’m going to take the same approach. Keep calm. Stay focused. And carry on investing.

The post 3 steps I’m taking to protect my investments in uncertain markets appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.