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Why long term investors should love this ASX share market volatility

ASX shares rise

Most people are scared of market volatility. Very scared. Some investors liquidate their holdings and go to cash at the first sign of trouble. That’s not investing.

Some investors will take profits on certain shares in anticipation of further falls, or set stop losses in the hope that it limits their downside. That’s not investing.

Another group will watch all the macro themes playing out – the trade wars, US tightening interest rates, China slowing down – and decide now is the time to get out. The strategy is obviously to get back in ‘when the dust settles’. Although it may sound smart, that’s not investing either.

There’s a final group of investors who regard falling prices as nothing more than a buying opportunity. They know in the long run the market will reflect the growing prosperity of the human race, so price falls today will mean little in 50 years time. These are long-term investors who think and act like owners. To be frank, the only true investors.

Think of it this way…

The market and the economy over the next few decades will be shaped by population growth, innovation, and a whole host of other things. Most of this long-term stuff doesn’t change within a matter of months. Therefore you’d have to admit, the profits that will be generated by businesses as a whole from now until 2050, will be largely unaffected by any recent events.

Despite that, prices are down over 10%. Because people only seem to care about the next 20 minutes, rather than the next 20 years.

Dividends for most companies are actually increasing this year and economies are still growing. So if we look at this rationally, this is nothing but a buying opportunity. Dividend yields are now higher than they were. Likewise, your future returns are now higher than they were because the starting point is lower.

So if you liked BHP Group Ltd (ASX: BHP) at $35.50, you should like it now at $31.50. And if you liked Carsales.com Ltd (ASX: CAR) at $15, then it’s a lot more attractive at $11, right?

Or you can always just buy the entire basket of stocks with an ASX 200 index ETF like  SPDR 200/ETF (ASX: STW).

Foolish takeaway

Shying away from the sharemarket because it has fallen makes no sense whatsoever. If anything, it should make buying shares more appealing. You’re simply getting a lower buy-in price and a higher dividend yield than you were before. To torture Warren Buffett’s analogy: the price of hamburgers has fallen, it’s time to buy some more.

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Motley Fool contributor Dave Gow owns shares of carsales.com Limited. The Motley Fool Australia has recommended carsales.com Limited. 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 Scott Phillips.

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