Worried about a market crash? You shouldn’t be and here’s why

Credit: Daryl Cauchi

In times of market turmoil, it’s easy to be sucked in by news headlines such as:

Investors dump Aussie shares

More ASX pain is ‘inevitable’

ASX losses top $30b

Biggest share drop since Brexit, dollar takes a beating

And so on and so on …

Don’t let the headlines scare you because as well as adopting the tried-and-tested strategies of:

  • buying businesses and not tickers,
  • buying shares when they’re inexpensive, and
  • holding quality businesses through good times and bad,

you should also know an important fact about the shares you own.

Here are five of the more popular stocks held on the ASX with the total number of shares on issue for each …

Stock Ordinary shares on issue *
Telstra Corporation Ltd (ASX: TLS) 12,225,655,836
JB Hi-Fi Limited (ASX: JBH) 98,947,309
Commonwealth Bank of Australia (ASX: CBA) 1,711,061,742
Suncorp Group Ltd (ASX: SUN) 1,286,600,980
Wesfarmers Ltd (ASX: WES) 1,126,131,000

… and here are another five second-tier stocks, again listed here with the number of shares on issue:

Stock Ordinary shares on issue *
Altium Limited (ASX: ALU) 130,215,813
IPH Ltd (ASX: IPH) 188,883,320
Corporate Travel Management Ltd (ASX: CTD) 99,993,356
Nanosonics Ltd. (ASX: NAN) 295,934,536
Blackmores Limited (ASX: BKL) 17,225,000

* obtained from each company’s annual report to 30 June 2016

Now, to understand market movements of your shares in context, you should next look at the volume of shares traded that actually resulted in the price movements you saw on Monday 12 September 2016:

Stock Volume of shares traded % of shares traded as a proportion of total
Telstra Corporation Ltd (ASX: TLS) 37,794,700 0.0031%
JB Hi-Fi Limited (ASX: JBH) 875,013 0.0088%
Commonwealth Bank of Australia (ASX: CBA) 5,017,120 0.003%
Suncorp Group Ltd (ASX: SUN) 3,185,523 0.0029%
Wesfarmers Ltd (ASX: WES) 2,598,130 0.0023%
Altium Limited (ASX: ALU) 653,802 0.0050%
IPH Ltd (ASX: IPH) 693,381 0.0036%
Corporate Travel Management Ltd (ASX: CTD) 386,263 0.0038%
Nanosonics Ltd. (ASX: NAN) 494,428 0.0016%
Blackmores Limited (ASX: BKL) 187,222 0.0108%

So, with a little perspective, you can see that in the midst of what looks to be quite a dramatic downward correction in share prices, the (vast) majority of shareholders in each of the companies above did precisely … nothing.

Yes, nothing.

In other words, shareholders owning 99.5% or more of the shares in the above stocks were simply too busy going to work, running their own business, and/or simply getting on with life. The more financially-independent holders of the above stocks may well have been boarding their flight for Hawaii rather than contributing to market mayhem.

It’s very probable then that the shares you own have also suffered on Monday based on the perspectives of a truly insignificant proportion of the shareholder base.

Foolish takeaway

I would suggest that you can safely ignore what other shareholders on the register are doing with their money.

Whether shareholders owning a miniscule half of one percent or less of the issued shares decide to sell their shares should have no bearing on your position in the company and your outlook for the economic well-being for the business.

Focusing on business fundamentals though doesn’t create the same sort of excitement as watching a 2.3% (or 120 point) fall on the S&P/ASX 200 (INDEXASX: XJO), as it did on Monday.

As always, get to know your companies, understand their material announcements to the market, and then decide whether to buy, hold or sell your shares (if you must) on what the company tells you, not its shareholders.

When shareholders owning 99.5% of the ordinary shares do nothing is, I think, one of the few times it’s safe to act with the herd.

By doing nothing, you’re doing something, and that is allowing your capital to grow in lockstep with the company’s business performance … over time. And the more time you can allow your money to be invested, the better.

Ignore price movements like Monday’s. They simply don’t matter.

How 1 Man Made 100x His Money After 50

Few know, that as Warren Buffett blew out the candles on his 50th birthday cake, he had just 1% of his current fortune. Think about it: At an age when most give up hope, Buffett was just getting started on the remaining 99% of his fortune. Goes to show you that it's never too late for you to potentially get rich. Which is why we've gathered the strategies we learned from Buffett, distilled them down to 11 simple lessons, and put it in an exclusive report for you to claim. Just click here to learn more about this handy investing guide.

Motley Fool contributor Edward Vesely owns shares of Corporate Travel Management Limited. The Motley Fool Australia owns shares of Altium and IPH Ltd. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.