All aboard the ASX rocking-chair express

When I was at high school, there was a sign in our woodwork room that I’ve never forgotten. The words read:

“Don’t be like a rocking chair – plenty of action, but no progress”.

Sound familiar?

The last couple of weeks have been enough to make even the most stoic seafarer a little queasy.

On May 25, just two weeks ago, the Dow Jones Industrial Average fell 0.6%. The next US trading day, (May 29, after the Memorial Day holiday) the market jumped 1%. The following day? Off 1.3%. Two days later, the sky was falling, with the Dow falling 2.2%. Three trading days later, it turns out that we’re not all ruined after all – and the Dow spiked 2.4% overnight, our time.

If you’re following along at home, the net effect of all of that gyration (including some days in between) is a net fall of only 0.7%.

More importantly, the Dow’s close overnight is higher than the level of May 18 – just three weeks ago.

Sure that’s the US – what about the ASX? As it turns out, almost identical outcomes – the S&P/ASX 200 Index  (ASX: XJO), (Index: ^AXJO) closed yesterday less than 3 points below the May 18 level, and the ASX SPI futures is suggesting a gain of 59 points today. 6 moves of more than 1% – either up or down – and we’re back roughly where we started three weeks ago – and likely quite a bit higher when the market closes.

Doesn’t exactly fit with the picture of a dangerous and volatile market does it? To be sure, I feel sorry for those trying to make a quid day-trading – but then short-term trading is a tough game at the best of times. I’m not sure it can be done successfully.

Instead, we focus on the long-term at The Motley Fool.

The worst thing is that such volatility often influences people to sell out at the bottom when they can’t take it any more – then buy back in once prices have stabilised (at a new, higher level). While waiting for easier times might seem logical, it’s an expensive exercise. The time to buy quality businesses is when the market is uncertain. Three simple commitments will help to keep you out of trouble – keep investing, keep a handle on your emotions, and hang on to well-bought quality businesses.

The other thing such volatility can do for you is temporarily offer you big companies at really attractive prices. By the end of last week, when our market was in the grip of fear, we saw BHP Billiton (ASX: BHP) sold off 5%, Billabong International (ASX: BBG) down 10%, Computershare (ASX: CPU) fall 4%, Harvey Norman (ASX: HVN) lose 6% and Woodside (ASX: WPL) drop 5%.

Falls alone aren’t a guarantee of value – but if you already had a watchlist ready, I hope you went shopping. If not, now is the time to create a watchlist of your own so you’re ready next time the market wobbles. You’ll be glad you did.

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Scott Phillips is an investment analyst with The Motley Fool. He owns shares in Harvey Norman. You can follow Scott on Twitter  @TMFGilla . Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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