Sick of Swings? Same… But History Is on Our Side

The Nasdaq Composite is down more than 4% on Thursday as we write this. Stocks tied to the artificial intelligence (AI) trade, especially chipmakers and data center names, are sliding for a second day, both here and in Asia.

Qualcomm (QCOM -11.71%) has fallen sharply after its smartphone chip sales came in below expectations. Arm Holdings (ARM -12.24%) is lower despite reporting record revenue, and Micron Technology (MU -13.14%) is adding to Wednesday’s 7% drop.

The Nasdaq is still below its record close on Oct. 6. And if you own AI-linked stocks, including many we’ve recommended, this week alone may have felt like whiplash. Monday brought another drop. On Tuesday night, stock futures fell as election results came in. Wednesday brought relief. This morning, the red is back.

That’s a lot to sit through, whether you started with $1,000 in a few stocks or have built a seven-figure portfolio over decades. Either way, the past month has tested our patience.

TMF co-founder and CEO Tom Gardner has never pretended this part is easy. After his October Quarterly Call, he told members he’s “happy to give up fractions of future gains for stability.” Even he will trade a little return for some peace of mind.

How Fast the Mood Can Turn

Tuesday night showed how quickly things can change. Stock futures fell at first as results came in, then turned higher overnight.

By Wednesday’s close, the Dow had jumped 3%. That was its biggest gain the day after a midterm election since 1982, according to CFRA Research.

Picture selling your stocks at 10 p.m. on Tuesday. By Wednesday’s close, you’d likely have missed the rally. Today’s drop may tempt some of us to make that same mistake.

Co-founder David Gardner has a line for moments like this: “Stocks always go down faster than they go up, but they always go up more than they go down.” The drops feel worse because they come so fast. Historically, though, the gains have been bigger.

Owning many stocks makes those drops easier to live through. The Motley Fool now suggests the average member own at least 50, built up over time. With that many businesses across different industries, it’s much harder for any single bad morning to sink you.

AI Isn’t One Trade

Not every AI stock joined Wednesday’s rally. Cloud giants like Amazon (AMZN -1.76%) and Microsoft (MSFT -2.48%) jumped. Chipmakers fell, and so did many companies tied to the data center build-out, such as Vertiv (VRT -14.14%), GE Vernova (GEV -6.31%), and Bloom Energy (BE -16.97%). That happened even as most stocks rose.

If you own a cloud giant, Wednesday may have felt great. If you own a chipmaker, you may have watched your stock slide while nearly everything else climbed. That can feel lonely.

But a few rough days for a stock say little about the business behind it. Big tech companies are still spending heavily on AI, and demand for chips still looks strong. Order books at many data center suppliers also appear to be growing fast, though the ride may stay bumpy. If the companies you own keep growing, short-term swings like this one tend to matter less over time.

“AI stocks” covers very different businesses with different risks, so they won’t always move together.

That’s why it can help to own a mix of AI businesses, not just one kind. When one part of the trade struggles, another may be holding up.

Two Ways to Stay in the Game

If today’s drop has you itching to act, two habits can help. They apply just as well whether you’re investing $300 or $30,000.

First, aim to hold for at least three to five years as a minimum. One rough week, or even one disappointing quarter, tells you little about where a business will be by then. When you think in years, an overnight futures move gets much easier to ignore.

Second, keep new bets small. Try a small position in an idea that interests you. If it works out, great. If it doesn’t, you’ve learned something without putting much of your long-term plan at risk.

The Long View

The past month has been uncomfortable, and the swings may not be over yet. We won’t pretend otherwise.

But it helps to zoom out. Over the long run, the stock market has historically climbed up and to the right. Since 1874, U.S. stocks have returned about 11% in an average year, counting dividends, according to our research. Past performance does not guarantee future results. Still, that history includes wars, recessions, crashes, and plenty of months like this one.

The Motley Fool’s goal is to help you beat the market over time, with a portfolio you don’t lose sleep over and actually enjoy owning. That’s the goal for us individually, too.

Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.