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Warning – don’t panic.

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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.

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Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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