It is definitely scary when the market makes a large movement down. You may not want to look at your portfolio, and you may not want to look at the news.
You may even get angry at the market and its seeming irrationality.
However, big falls in share prices can often provide big opportunities. To quote legendary investor Warren Buffet:
“We have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.”
And, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Mr Buffett is simply telling is to invest while the market is down, and to get out while the market is soaring.
According to Buffett, “Price Is What You Pay, Value Is What You Get”. It can be difficult to look past falling share prices, but consider that it is not always indicative of an equivalent fall in value.
Forbes Magazine estimates that Warren Buffett lost $6.2 Billion last week, but it’s unlikely Buffett is stressing. He has previously stated “If [an investor] is trying to buy and sell stocks, and worry when they go down a little bit … they’re not going to have very good results.”
Warren Buffett has previously indicated that he believes in the investment principles of Benjamin Graham, the famous author of the Intelligent Investor and Security Analysis – two highly regarded books on investing.
Under Mr Graham’s principles, an investor is advised to concentrate on the real life performance of his companies and its earnings and dividends, and to use this to determine stocks that represent good value relative to their price – so if the price drops –the stocks become more attractive.
Indeed, Dr Shane Oliver – Chief Economist and Head of Investment Strategy at AMP Capital wrote back at the lows of February “corrections in the order of 5-15% are normal; in the absence of recession, a deep bear market is unlikely; selling shares after a fall just locks in a loss; share pullbacks provide opportunities for investors to pick them up more cheaply; while shares may have fallen, dividends haven’t; and finally, to avoid getting thrown of a long-term investment strategy it’s best to turn down the noise during times like the present.”
Often when the market falls – it is a great time to buy shares; so if you can look past the headlines – try to identify stocks that you think are good value relative to their current price.