Another day, another fortune wiped away for terrified investors.
In what can only be described as a 'frenzy' for the exits, local equities have once again been sold off en masse this morning as investors continue to seek 'safety' in the form of cash. The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) itself is off another 1.3% at just 4,973 points, which follows last week's 4.2% decline and August's brutal 8.6% loss.
Given how wide the selloff has been, very few investors could claim to have avoided the pain altogether. Especially when you consider the losses endured by such widely-held companies as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), together with Woolworths Limited (ASX: WOW) and BHP Billiton Limited (ASX: BHP).
Despite the enormous losses endured by markets all around the world in recent weeks, there is still a huge element of confusion about what is actually causing the severe selloff. Of course, there's the obvious explanation that investors are growing increasingly concerned about China's waning economic growth as well as crashing commodity prices, but markets are also worried about the pending US interest rate hike.
That's something that has been expected for the better part of a year now, but recent events in the global economy created a glimmer of hope that the US Federal Reserve may just hold off on its plans until next year. At the same time, Australia's economy is growing at a snail's pace with some economists suggesting we're on the verge of recession.
The truth is, I have no idea what's going to happen in the short term. Nor do any of the so-called 'experts' who make a living from spreading the doom and gloom through the financial media.
Your opportunity to strike it rich
It can be extremely difficult to just sit by and watch as your portfolio gets thrown around like a rag-doll. Luckily, my portfolio is well diversified so the impact has been manageable, but it can still be a challenge to simply sit on your hands and avoid the temptation to 'sell' stocks to lock in profits and minimise the potential for further losses.
In reality however, that's what investing is all about. It's in the nature of stock markets to fluctuate, and the higher level of volatility associated with equities compared to other asset classes is also what makes it possible to achieve higher returns in the first place.
And here's the kicker – it will be those investors who keep their cool during these testing times that will have the last laugh. To quote BusinessDay columnist Michael Pascoe, as cited by The Sydney Morning Herald recently, "Those who wish to panic are welcome to do so; it makes those who are happy to buy when they see value, a little richer."
As violent as the market has been in recent times, it's very possible that we'll look back in a couple of years' time and not even recognise this as a blip on the radar – just like the sharp correction we experienced in 2011 (don't remember that?)
There's a good chance that the market will recognise that the current 'crisis' was well and truly blown out of proportion, while a number of quality companies will have gone on to set fresh all-time highs well above their current levels, making investors who hold on a sweet fortune in the process.
Of course, there is no telling just how long this round of volatility will last, nor is it possible to tell how much damage will be caused. But it couldn't be more obvious that there are a number of bargain opportunities currently presenting themselves to investors willing to take that chance.
