For those of you tracking my reinvestment in VNR, you may have seen it drop to a historic low of $1.47/unit. Given I reentered the market at $3.17/unit, this is a 54% drop from what is an astounding low!
Time to panic? No. It’s time to play the market long term. Remember this:
I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. –Warren Buffett
I have invested in VNR under the assumption that I can make cash on a monthly basis. Driven by the lower prices, VNR has already reduced the distribution to match. In my humble opinion, the further drop in prices is more emotion and less facts.
This morning I saw an article citing how VNR is in a great position for people to score some arbitrage. That is when you make money by leveraging a change in value. This article has in depth analysis on how this is the time to buy since the author is predicting a quick recovery to a more stable price.
I don’t go for that. That is betting on appreciation, something I wouldn’t do short time. But I do use that analysis to back up my assertion that the current price isn’t based on fundamental risk in the company, but instead that the market is getting loaded up on emotion relevant to VNR.
Don’t invest in the market if you are riding on emotion, because it will get the best of you. Emotion is the reason mutual funds are a terrible failure. We are constantly pitched how they let us sidestep the risk of the market, but when things drop, people panic because it MUST mean something is wrong.
For those that don’t sell their mutual funds during losses, fund manager are forced to sell anyway to make pay outs. It doesn’t matter if we panic or not. Other people freaking out will drag us along. If you buy individual stocks and can keep your cool and stay objective, then you can make money in the long run.
DO: Invest in stocks if you have done extensive research, you understand how they make money, and understand dividend payouts, risk of making dividend payments, and have an exit plan.
DO NOT: Invest in stocks if you are looking for a quick buck, hoping to make your money on appreciation, or need a certain cash value at a certain time in the future.