Warning – don’t panic.
There have been volatile times recently on the ASX. With prices for oil, iron ore and coal falling sharply, the mood in the resources sector has turned decidedly sour. Further, the negative mood seems to have been adopted more broadly by the market, with a wide range of stocks showing meaningful price declines.
It is easy to fit a narrative to this – the resources sector makes up a significant part of the Australian economy – and pressure felt there will flow through to consumer and business confidence more generally, resulting in share price declines across the market.
The selloff is not yet very severe, but is probably starting to cause some nervousness. At times like this, there are a few principles that are helpful to keep in mind:
- When things go sour, prices can change much faster than values. If you own something because you have done your research and you believe in its value, a falling share price does not disprove your thesis; and
- If your investment horizon stretches beyond a few years, falling prices today are probably in your interest. Opportunities to buy good quality businesses at attractive prices don’t come along all that often. They come along about as often as sharp market selloffs do. This is not a coincidence.
We have no idea whether the recent turbulence will evolve into a more serious market downturn, but if it does – so be it. It’s in those conditions that a disciplined approach to long term value investing really comes into its own.