It's been a rocky ride for the S&P/ASX 200 (ASX: XJO) (^AXJO) this week, opening on Monday morning at over 5,300 points but it's now only a touch above 5,200. Five big name stocks have tumbled down with the index, with the poorest performer dropping well over 10%.
Sudden price drops do give a savvy investor an opportunity to snatch a bargain, but the truth is that it's time in the market, not timing the market that's important. So with that in mind, let's have a look at some of the movements of these stocks over the past week and what they have to offer a savvy long-term investor.
The Australian stock market's movement is heavily dictated by the changes in the top 10 stocks. As such, it is unlikely that if the index drops, the banks and miners will appreciate in price. For over a year, bank stocks and other yield plays have pushed ferociously higher, shrugging off bearish earnings and pushing the index along with it. ANZ (ASX: ANZ) and Commonwealth Bank (ASX: CBA) have each climbed around 30% in past 12 months but earnings growth has been less inspiring.
ANZ and CBA are differ significantly in both their future strategy and current market position. CBA is highly leveraged to the Australian property market whilst ANZ is increasing its business presence both here and overseas whilst maintaining a solid share of the mortgage market. Even with a drop in prices this week, investors have to be in it for the long term because the banking sector is facing strong headwinds in the short to medium term. Combined with high price tags, investors should be cautious.
When prices fall quickly, investors (and shareholders) need to consider the implications of the price drops against the long-term growth prospects of a company. In five years from now, what will Leighton Holdings (ASX: LEI) shareholders remember from yesterday's price drop, which resulted from a bribery scandal emerging in Fairfax Media (ASX: FXJ)? My bet is not much.
The scandal was released last year by the company and yet the stock price still took a hard fall yesterday. Is the reaction, which wiped off around 12% of the company's $6 billion-plus market capital, really warranted and is the company worse as a result? In this Fool's opinion, it has made the company better for investors as it's now cheaper and it has gotten rid of misguided directors. Also, according to statements released by the company, it is more focused on maintaining a positive workplace culture.
This week in the booming telco space, investors have watched as Telstra (ASX: TLS) and M2 Telecommunications (ASX: MTU) shed minor amounts on their share price. Telstra has dropped around 1.5% whilst M2 has shed nearly 3.5%. Investors needn't be concerned. Both companies have strong management at the helm, good balance sheets and a booming industry ahead of them. In the long run, investors will reap the rewards of these characteristics with capital gains and strong, fully franked, dividends.
Foolish takeaway
Stock markets are irrational. If markets truly were "efficient" then no one would make any money from capital growth. When the market throws you a curve ball (like Leighton's shareholders are experiencing) focus on the long term and why you bought the stock. You wouldn't rush to sell your house if it dropped by 5% or 10%, instead you'd wait it out and reap the rewards of your investment.
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Motley Fool contributor Owen Raskiewicz owns shares in Leighton Holdings.
