Bring on the bear market


Despite the recent stock market wobbles, The Motley Fool says it could be an ideal opportunity for long-term investors.

Thursday was a dark day for Australian retailing stocks. Following the disastrous profit warning from David Jones (ASX: DJS), the S&P/ASX 200 retail index plunged 8%, its largest daily fall in over a decade.

Not even an “everything is ok over here” statement from rival Myer (ASX: MYR) could stem the flow, with everything from JB Hi-Fi (ASX: JBH) to Harvey Norman (ASX: HVN) taken down with DJs.

A dark day for retail investors. A dark year for the Australian stock market in general.

After briefly flirting with the 5,000 mark in April, the S&P/ASX 200 index now trades below 4,500, down over 5% year to date.

What have we done to deserve this? Our economy is supposedly the envy of the world. Jobs are aplenty. China continues its gangbusters growth, consuming our plentiful natural resources. Yet in stock market terms, we’re being outperformed by economic basket cases like the U.S. and U.K.

The U.S. market is up 4% in 2011. The U.K. market is up 2.5%. Admittedly these are hardly numbers to get the heart racing, but they are better than minus 5%.

The miracle of compound returns

Of course, we’re only looking at this from a very short-term perspective. The Motley Fool encourages people to view the stock market over a 10, 20, 30 and 40-year timescale. It’s over such long periods of time that the wonderful power of compounding returns can really work in your favour.

For us, investing should be a lifelong endeavour, not something you dip in and out of depending on your mood, or the recent mood of the market.

That said, you do need to keep up with current events. Take your eye off the ball, and you could be staring at some big losses on individual stocks — just ask David Jones shareholders what it feels like to take an 18% haircut in one single trading day.

There is a stock market adage that if you don’t get the short-term right, there is no long-term.

We know plenty of people who’ve jumped into the stock market full of hope, ready to make their first million by tomorrow lunchtime. We’ve got news for them — unless you are very lucky, and just happen to be in the right place at the right time, it doesn’t work like that.

Hot stocks, or not…

Your latest “hot mining stock set to soar” will more than likely end up a bust rather than being the next Fortescue Metals Group (ASX: FMG), Atlas Iron (ASX: AGO) or Lynas (ASX: LYC).

But that doesn’t stop plenty of people trying — just witness the $100,000 worth of orders The Motley Fool received for our fictitious company Kollymagnus in our April Fool’s prank earlier this year.

So why do so many people try? It’s the gambling instinct. Every Australian is born with it.

We love nothing more than trying to get rich quick, whether that be on the races, on the pokies, forex trading, or sifting though the literally hundreds of penny share hopefuls listed on the Australian Stock Exchange.

It’s no coincidence that probably the world’s greatest investor, Warren Buffett, invests in quality companies, for the long-term. Get rich slowly would be his motto.

For Buffett, the ideal holding period for any investment is forever. He certainly practices what he preaches, having held Coca-Cola since 1988 and Washington Post since 1973. We’d all do well to take a leaf or ten out of his book.

Bring on the bear

Today, stock markets are in a period of heightened uncertainty, not knowing whether they’re Arthur or Martha, Julia or Tony.

George Kanaan of UBS was recently quoted in The Australian Financial Review as saying…

“We are in a bearish market…I think it’s going to stay like this for the next six months.”

Long-term investors can only hope he’s right. Who wouldn’t like the opportunity to buy shares when they are on sale?

That time might not be right now, but a little more uncertainty, a touch of panic and a dash of greed would open up some great buying opportunities.

Watch this space…

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