While the May 5 stock market crash shook a lot of investors, it really just continued a trend. A number of stocks that had delivered tremendous returns during the pandemic have seen their prices fall dramatically over the past year. That’s not a one-day phenomenon. It’s something that has been happening for quite a while.
To put the losses into perspective, let’s look at a few pandemic-era darlings and how they have performed over the past 12 months (as of market close on May 6):
All of these companies have taken a beating over the past year — which you can blame on the world opening back up and services/products built around being at home being in less demand — but that’s not the whole picture. Share prices rise and fall not just on business metrics or how a company actually performs, but by perception.
Some of these companies have been hurt, perhaps irreparably, by the end of the pandemic, but others on this list will not only recover but should prosper. That creates a challenging question for anyone who currently owns shares in the companies (or any others perceived as pandemic stocks).
Should I Sell My “Pandemic” Stocks?
If you already own shares of a company there’s no point in lamenting your original decision to purchase the stock. You should, however, consider your original reason for buying shares, what’s often called an “investing thesis.”
Was your thesis (whether you thought of it or got it from a hopefully credible source) that shares would do well because of pandemic-driven demand? If that was your sole reason for owning a company, then your sell decision likely comes down to whether you believe that demand situation might occur again.
Most people who bought shares for that sole reason likely (hopefully) began getting out when vaccines first became available and the world began opening back up. The reality is that most people who own any of the above companies as a long-term investor believed that they had advantages beyond people being stuck at home.
Yes, the pandemic helped Netflix and Amazon, but are their prospects bleak now that it’s easier to go to the grocery store or a movie theater? The same logic applies to Shopify and most likely Zoom. Sure, companies will have in-person meetings but will they really cut their Zoom subscriptions with more people working from home and stronger awareness around people being able to stay home when not feeling well?
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Peloton and Teladoc are tougher questions. Telemedicine and at-home fitness will not disappear, but they also connected may not grow and both companies face issues with competitors offering very similar products.
The question of whether to sell your pandemic stocks — or really any stock ever — comes down to your thesis and whether the company can grow. Amazon, for example, had some massive supply chain issues that hurt its bottom line this quarter, but do you believe the company will lose its position as the dominant digital retailer?
You can apply similar logic to Shopify and Netflix. Will Amazon rivals not want logistics and fulfillment services from Shopify in a post-pandemic world? Will Netflix be able to cut content costs and deliver more hit shows?
Selling a stock isn’t about the stock price or cutting your losses. It comes down to whether you think the company will grow its business. Share price often does not reflect reality, but over time, it generally (but not always) rises or drops to reflect the actual performance of the business.
Stay Calm and Don’t Panic Sell
“It feels terrible when stocks are crashing, but there’s no better time for long-term investors to be investing. If you were an investor, the Internet bust felt horrible. Yet the S&P 500 is up 326% since the end of 1999,” The Street Smarts Editor Todd Campbell said.
Amazon shares, as just one example, may be down massively this year, but the share price is up 137.77% over the past five years. So, even with the drop over the past 12 months, long-term investors have made over $1,000 per share.
Selling shares in a company — at least for a long-term investor — should not be a move made lightly or due to panic. The decision should be based on the opportunity you see going forward.
If you believe that Amazon won’t succeed because you think Shopify. Target, and Walmart have better business plans, that might be a reason to sell. Selling because of one quarter of bad (but very understandable) news makes very little sense.
The same thinking applies for every other stock in your portfolio.