Why this is an Apocalypse Story not worth listening to

Let’s face it: The financial media love a good apocalypse story.

You can’t really blame them.

Bad news sells, after all, and anyone with an interest in the share market is more likely to click on a story declaring financial Armageddon than one spreading the benefits of long-term buy-and-hold investing.

The human mind just works that way. We’re receptive to fear, and the media knows it.

While that is the case, it makes it tricky for the ordinary investor to navigate their way through choppy waters.

Over the last month-and-a-half, share markets around the world have been thrown into disarray.

The S&P/ASX 200 (ASX: XJO) has been no different, falling 8.5% so far in 2016 and 19.2% since its peak in April 2015.

When times get tough, investors naturally want answers. So they turn to the newspapers and television news bulletins to figure out why the market is on its way down.

They’re immediately faced with big bold headlines calling for another global recession. Or how low oil prices could lead to the collapse of the global economy.

Indeed, just over the weekend an article in The Australian Financial Review read “Markets could be heading for 2008 again.”

The Global Financial Crisis is still fresh in our memories, and no one wants to experience that kind of pain again…

Before that, investors were faced with the advice from analysts at the Royal Bank of Scotland to “Sell everything”.

As a sidenote, the advice was to sell almost everything, but the media played that part down…

Nonetheless, the headline was strong, and certainty grabbed investors’ attention. The bank even warned of a “cataclysmic year” where major stock markets could fall by a fifth.

Fair enough, nobody likes watching their shares fall 20%, but I wouldn’t have gone so far as to call such a fall “cataclysmic”…

After all, share market declines of 20% or more are normal. In fact, they come around every few years, on average, much the same as bull markets.

At the time, it really can feel like the world is ending. But after the fact, investors typically reflect on these volatile periods as being great buying opportunities.

No, the world isn’t coming to an end…

There’s no denying that it’s been a terrible start to the year for investors around the globe.

But while plunging oil prices and a slowdown in China’s economy are causing some of the damage, it seems that the market’s fear is also having a dramatic effect.

Analysts from Citigroup seem to agree. They argue that while risk assets, such as shares, have performed poorly, risk appetite has taken an even bigger hit.

As quoted by The Australian Financial Review, Citigroup’s chief US equity strategist, Tobias Levkovich, said (emphasis added) “There appears to be fear of fear itself as sentiment is simply awful.”

They go on to argue that during spans of bearish sentiment, investors tend to look for a useful parallel as a comparison to the current situation.

Maybe that explains why there have been so many mentions of the GFC recently…

Of course, there are others who are coming around to the opportunity the market’s bearishness is creating.

The Reserve Bank of Australia’s own governor, Glenn Stevens, has gone on record as saying fears of a global recession are “overdone”.

Indeed, local companies are still putting out strong earnings results.

Commonwealth Bank of Australia (ASX: CBA) posted a stronger-than-expected earnings result last week.

And then this morning, the National Australia Bank Ltd. (ASX: NAB) and Challenger Ltd (ASX: CGF) both surprised the market with their own earnings updates.

So far, earnings certainly don’t appear to have fallen from a cliff…

Meanwhile, The Telegraph’s Ambrose Evans-Pritchard said “This is a global stock market rout worth celebrating.

He notes that global share markets might look a little worse for wear, but the actual economy is still plodding along nicely. He added…

So, at the risk of sticking my neck out a long way, let me suggest that the equity bloodbath this year is little more than noise in the particular set of circumstances facing us.”

Little more than noise? That should be like music to your ears.

Time to Celebrate

Investing through a bear market can be scary.

Your first instincts might be to sell, like pulling the Band-Aid off in one quick motion to limit the pain.

Certainly, many investors act on that instinct, creating a panic in the market that spreads to other investors.

But while that might be the case, Foolish (capital ‘F’) investors are taking the opportunity to capitalise on that panic, snapping up shares in great companies at bargain prices.

As the panic wears off, those shares should start to see the light of day again, generating those ‘brave’ investors some significant gains in the process.

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