Motley Fool Australia

Motley Fool Australia

Since 1993, millions of investors have trusted The Motley Fool for simple, down-to-earth investing research.

More pain as market crashes again

Market crashes are great buying opportunities. Read The Motley Fool’s 3 favourite stocks to buy now.

OMG!

Oh, hell!

The sky is falling!

Panic!

We interrupt this broadcast with a special announcement.

Stop.

Relax.

Take a chill pill.

Yes, we realise the stock market’s imploding. We get it.

If you’ve read our free report Read this before the market crashes, you should hopefully be well prepared for days like today. Even still, when they inevitably come, they are rarely fun.

Over the past two weeks, the S&P/ASX 200 index has lost nearly 10% of its value. Since its 2011 peak in mid-April, the market is down a portfolio-wrecking 17%.

The market has been dripping down for days. Since it traded at 4,600 just 2 weeks ago, it has plunged to around 4,100, a rather quick 10% haircut.

It’s a correction within a correction. A double correction. Or a crash. Call it whatever you like, the net effect is a lot of pain for a lot of investors.

The level of panic is evident in some of the price movements today alone.

Company August 5 Inter-day Price Fall
Linc Energy (ASX: LNC) -13%
Lynas Energy (ASX: LYC) -9%
Beach Petroleum (ASX: BPT) -9%
Illuka Resources (ASX: ILU) -7%
Atlas Iron (ASX: AGO) -7%
OZ Minerals (ASX: OZL) -6%

By the time you read this, prices may have changed…and quickly. Fear and panic move fast!

Making things worse, many of these losses are coming on the back of big falls over the previous couple of weeks.

Collectively, we as investors have just seen a fair chunk of the gains made since the darkest days of the GFC wiped out in a matter of days.

Scary.

Yet if you’re reading this, it means we’re still typing.

We haven’t jumped out any windows. That sort of dramatic overreaction doesn’t help.

Well, what should we do?

Firstly, do nothing. Panicking as your stocks plummet won’t slow their fall, and it won’t salvage your portfolio — it’ll just lock in your losses.

(We are assuming here you are not using excessive margin to try to juice your investing returns. Or an amateur trading the forex markets. Please tell us you’re not, are you? We have warned you…)

Secondly, we asked The Motley Fool’s Investment Analyst Dean Morel for his thoughts.

As ever, he’s as cool as a cucumber. Disturbingly so.

“Exciting times,” he said first thing this morning.

“I think the key message should be to start buying, but never empty your gun in one go.”

“We have a good shot now, but need some ammo in case we get to see the whites of their eyes!”

Great advice.

But what should we start buying?

We asked Dean for 3 ‘special edition’ stocks on his radar.

Westpac Banking Corporation (ASX: WBC): Great yield and undervalued. Earnings growth may flatten for a few years, but long term Westpac has many levers available to juice their returns and increase dividends.

Telstra Corporation Limited (ASX: TLS): Fantastic yield and one of Australia’s best brands. Telstra owns the leading wireless network and through the rental of their ducts to NBN will have the lowest cost fibre network. If Telstra continue improving customer service, their recent mobile and broadband subscriber gains will continue. Telstra is my number one ASX 20 pick for the long term as it provides excellent cash returns, limited downside and reasonable upside potential.

M2 Telecommunications Group (ASX: MTU): Growth at a large discount. A share price below $3 provides a great entry point for this leading telco with proven management, 5% forward yield, excellent balance sheet, great customer retention, strong recurring revenues and an excellent ROE.

Thanks Dean.

He’ll be back with his regular Stock on the Radar column next week.

Prices can go down as well as up

Whatever the reason for the market’s sudden bout of volatility, it does at least remind us that asset prices can go down as well as up.

Otherwise, we might do something stupid — like, buying up shares in popular yet highly speculative companies like Anteo Diagnostics (ASX: ADO), MHM Metals (ASX: MHM) and Pluton Resources (ASX: PLV), and piling into companies with poor long-term prospects like Virgin Blue (ASX: VBA), National Hire Group (ASX: NHR) and Jetset Travelworld (ASX: JET)

What should we do about this stock market?

1) Keep collecting and depositing your pay cheques.

2) Keep researching high-quality, low-priced stocks.

3) Keep buying shares at a significant margin of safety.

4) And, as always, keep purchasing no more of any given stock than you can afford to lose. (Because, after all, we all make mistakes from time to time.)

Once you’ve got that down, though, it’s time to get greedy.

Greed is good

Even the pros are panicking right now. Margin calls are adding to the volatility and fear. Some investors, like it or not, will be selling out of positions they love, at any price, in a frantic attempt to staunch the bleeding.

Remain cool, calm and collected. Investors dream of moments like these, when panic selling pushes any of your favourite stocks down below your hoped-for buy-in price.

Embrace the moment. Today just might be your lucky day.

More Foolishness:

Free Report: Read This Before The Market Crashes (it’s never too late)

Motley Fool staff and freelancers may have interests in any of the stocks mentioned in this report. These interests can change at any time. The Motley Fool has a living, breathing disclosure policy .

The One ASX Pick You MUST Add to Your Portfolio

Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!).

Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool’s Top Stock for 2014."

See all posts by Motley Fool Staff
The Motley Fool