1 bear market blunder investors are still making

Focusing on the short term could lead to long-term losses.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

A lot has changed in the past year in the stock market as growth stocks have been crashing hard, with the Nasdaq dropping by 15%. Even the more stable S&P 500 has fallen 6%. Concerns about inflation and a possible recession are weighing on investors.

But despite these fears, many investors are still making potentially costly mistakes by focusing on current trends and hopping on stocks that simply aren't good buys. Here's what I mean.

Investors are taking on too much risk

Billionaire investors Warren Buffett and Charlie Munger have compared the markets to a gambling parlor. This could explain why a struggling retailer like Bed Bath & Beyond, which has incurred losses of more than $866 million over the trailing 12 months, can skyrocket more than 45% within a single trading session as it did last week.

Another example of that gambler mentality is the desire to invest in companies that have monkeypox treatments or vaccines. Shares of SIGA Technologies, which makes a monkeypox treatment, have jumped close to 260% in just the past six months. Bavarian Nordic is up 64% during that period as investors are hopeful about its monkeypox vaccine. Meanwhile, the S&P 500 has declined 4% over that stretch.

While some investors are earning quick profits on this short-term trading, buying at the wrong time could lead to significant losses. There's also the danger of hanging on too long with these types of stocks.

What's hot today could be a dud next year

If you end up buying a stock based on a short-term trend, the risk is that when the frenzy calms down, you could be left holding the bag, with an investment that doesn't look nearly as exciting as it once did.

COVID-19 vaccine maker Moderna (NASDAQ: MRNA) is a good example. Last year, its stock price jumped 143% as rising COVID case numbers made the healthcare stock a hot buy. This year, the company expects to generate $21 billion in revenue from its vaccine.

But beyond that, there are big question marks surrounding the business. Moderna's focus on COVID has resulted in a lack of diversification for the company, and that has made investors wary of the stock. It's down 40% year to date.

It's a similar story for rival COVID vaccine maker Novavax, which in 2020 jumped by a whopping 2,700%. But with its COVID vaccine not obtaining Emergency Use Authorization until just last month and the company slashing its sales forecast for 2022 in half, its shares are down 75% this year.

Investors shouldn't overlook fundamentals

The key takeaway for investors is to focus on long-term trends and a company's business prospects beyond just the short term. While SIGA Technologies might be a hot buy this year, it could give back many of its gains if monkeypox cases subside and the disease doesn't derail the global economy the way COVID has over the past few years.

More stable healthcare stocks, such as Merck and AbbVie, have proved to be sound investments and have outperformed the markets this year, with returns of 19% and 4%, respectively. Although they might not generate sky-high returns in the short term, they also won't jeopardize your savings and put your portfolio at great risk.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Moderna Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A woman sits at her desk thinking. She is surrounded by projections of world maps on various screens with data appearing below them.
International Stock News

A clear case for international investing

US shares have outperformed Australian shares by a wide margin over the past 30 years.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Prediction: Nvidia's recent unobtrusive maneuver could signal a big growth move ahead.

Let's take a look.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Prediction: This artificial intelligence (AI) stock could be the next Nvidia — and it's not what you think

Let's take a closer look at that name and see why it could turn out to be a solid addition…

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

Worried about Tesla's Robotaxi? These two words from Nvidia CEO Jensen Huang might change your mind.

Investors are on the edge of their seats as Tesla's robotaxi launch is reportedly around the corner.

Read more »

AI written in blue on a digital chip.
International Stock News

Warren Buffett has 23% of Berkshire Hathaway's portfolio invested in 2 AI stocks up 600% and 900% in the last decade

Here's what investors should know about these two stocks.

Read more »

Happy woman working on a laptop.
International Stock News

Want to invest in quantum computing? 3 stocks that are great buys right now.

They all give investors direct exposure to quantum computing, but aren't the all-or-nothing bets that some investors may regret going…

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

Billionaire Dan Loeb just sold Meta and Tesla stocks and piled into this hot AI stock up 1,500% over the past 5 years

Let's see what investors are thinking about these stocks today.

Read more »

A head shot of legendary investor Warren Buffett speaking into a microphone at an event.
International Stock News

Warren Buffett just spent $1.8 billion on 7 stocks. Here's the best of the bunch

Buffett's relatively small investments could be big opportunities for individual investors.

Read more »