During times of heightened political tension, such as trade wars, military conflicts, or strained diplomatic relations, it’s common to see headlines claiming that billionaires and millionaires who own listed shares are "losing billions" as stock markets react to uncertainty.
These stories often highlight sharp declines in share prices, creating the impression of massive financial losses. However, what is often overlooked is that these same articles are usually followed days or weeks later by reports on how much these individuals have "recovered" or even gained once markets stabilise and share prices rebound. This reinforces a crucial lesson: short-term losses are often temporary fluctuations, not permanent damage, especially if you stay invested and take a long-term view.
Not All Share Price Drops Are Red Flags
A drop in a company’s share price can happen for many reasons, geopolitical risks, economic uncertainty, disappointing earnings, or shifts in market sentiment. But a lower price doesn’t always mean something is fundamentally wrong with the business. For long-term investors, it’s important to remember that losses are only realised when you sell. Until then, it’s simply a loss on paper. That’s why patient investors often hold their positions or even buy more during downturns, using the opportunity to increase their exposure at a better price.
Earnings Per Share (EPS), Price-to-Earnings (P/E) Ratio and Dividends
Earnings per share (EPS) measures the company’s profits allocated to each share. When EPS remains steady or grows while the share price falls, the price-to-earnings (P/E) ratio decreases, potentially indicating that the stock is undervalued relative to its earnings.
Dividends, which are paid out of these earnings, tend to stay consistent when earnings are healthy. As the share price drops, the dividend yield rises, making the stock more appealing.
Together, a lower P/E ratio and a higher dividend yield could signal an attractive investment opportunity, potentially offering a better return on investment as you buy shares at a more favourable price while still receiving steady income.
Early Investing Turns Uncertainty Into Opportunity
Starting to invest early plays a vital role in navigating and benefiting from market ups and downs. Early investing not only gives your portfolio more time to recover from shocks but also leverages the power of compounding, where reinvested dividends and long-term share price growth work together to build wealth over decades. In uncertain times, early and consistent investing can turn volatility into opportunity, laying a foundation for financial stability and growth in the years ahead.
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