A Foolish market crash share investing strategy


Volatility is the price of admission to investing in shares.

So much for a 2016 ASX crash.

Before Midday, the local S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) was up 0.5%.

Indeed, despite a 5% fall in China’s Shanghai Composite yesterday, it appears Australian investors have a completely different outlook on the market to this time last week and are again wading into the market to buy shares.

I should note, that many who do not invest in the sharemarket regularly confuse volatility with risk.

They see today’s share go up – winner! winner! – but if it falls, surely, it must be a failure of their stock-picking ability, their advisor’s skill or the sharemarket in general.

What is comfortable is rarely profitable

It’s easy to see why many investors feel this way, and why 29% of Aussies believe you cannot get rich by investing only in the sharemarket. Warren Buffett, anyone?

Indeed, for as long as they’ve grown grey beards and tilted derelict glasses at the sound of a whisper in a lecture hall, academics have theorised that share price volatility equals risk.

For long-term investors like myself, volatility equals opportunity – not risk.

Of course, your temperament is key. And the best investors are those who have a calm and rational temperament.

Being a successful investor requires you to accept that sharemarket uncertainty is a certainty. Indeed, I couldn’t tell you what China’s central bank will do tomorrow. I can’t even tell you what I’m doing tomorrow. But I’ll still be invested in shares.

To borrow a quote from the famous Dodgeball coach, Patches O’Houlihan, I believe you’ll become far wealthier by owning shares than avoiding them, so long as you embrace the fact that your returns will dodge, duck, dip, dive and dodge in the short-term.

Only over the long pole will you make sustainable wealth from the sharemarket.

To put the latest share market “crash” in perspective, take a look at this chart of the Dow Jones Industrial Average over the long-term:

Source: Google Finance; with a poor attempt at putting the latest 'crash' into perspective, by Owen Raszkiewicz

Source: Google Finance; with a poor attempt at putting the latest ‘crash’ in perspective, by Owen Raszkiewicz

Trying to predict – and avoid – market crashes is not only a waste of time but also of your capital. Sure, you could save yourself some heartache and capital in the short-term. But in my opinion, you’re also far more likely to miss the often rapid rebound in prices and a subsequent bull market.

3 quality blue chip shares

If you understand that shares are simply part ownership of businesses, your investing will become a whole lot easier.

Take Telstra Corporation Ltd (ASX: TLS), Westfield Corp Ltd (ASX: WFD) and Wesfarmers Ltd (ASX: WES) – the owner of Coles, Kmart, Bunnings Warehouse, Officeworks and more – as perfect examples. They are three quality businesses whose services you’ll likely know and trust. Go into a store, take a look around and think to yourself. Will this business be bigger and better in five or 10 years from now? If the answer is a convincing ‘yes’, I suggest you do some research and weigh up the benefits of owning some shares for yourself.

Go into a store, take a look around and think to yourself. Will this business be bigger and better in five or 10 years from now? If the answer is a convincing ‘yes’, I suggest you do some research and weigh up the benefits of owning some shares for yourself.

Foolish takeaway

Investing in the sharemarket can be a little bit gut-wrenching at times. But once you understand how the sharemarket works and acknowledge that you are simply a part-owner of a big business, you’ll become immune to the ‘noise’ created by those predicting the next market crash.

And when share prices do indeed crash (which some say occurs every seven to nine years, on average), you’ll be ready and waiting to pick up some bargains.

 

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Motley Fool writer/analyst Owen Raszkiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.