I'm sure many investors are watching the ASX and world markets this week with a lot of nervousness and perhaps dread. The S&P/ASX 200 Index (INDEXASX: XJO) has plummeted to its lowest level since early January and is down 6.34% on last week's record highs.
Now (in my opinion) those aren't especially concerning raw numbers. Dramatic changes in sentiment are always a little scary, but just going on numbers here, statistically, we aren't in 'bloodbath' territory (yet).
But that brings me to the (frankly deplorable) media coverage you often see around these sentiment changes. Headlines like 'bloodbath on global markets' and 'ASX wipes $3 trillion in day of market carnage' are deliberately designed to draw eyeballs by sensationalising moves on the stock market.
No one makes headlines saying 'trillions added' when stocks go up (which is what usually happens), just saying.
But it is still uncomfortable for investors watching the net worth of their portfolio go down on paper, absolutely.
So how does one invest in this kind of investing climate?
Well, if you're so inclined, you can try and invest in 'hedges'. There are many kinds of hedges. Some are asset-based, like gold or government bonds. These are easy to invest in with exchange traded funds (ETFs) like the BetaShares Gold Bullion ETF (ASX: QAU) or the iShares Treasury ETF (ASX: IGB).
Or there are inverse ETFs like the BetaShares Australian Equities Strong Bear Hedge Fund (ASX: BBOZ). This kind of fund is built on a shorting strategy, so (in theory) will go up if the broader stock market falls. It's a more high-risk strategy, but one many investors dabble with.
Or (as I try to do myself), you can stick to the fundamentals and watch your favourite companies to see if they're on sale. If they are, go for it. If they're not, maybe get some cash together and wait.
For anyone thinking about selling your shares as a result of this red day on the markets, I'm sorry but in my opinion, the right time to sell for most stocks was last week when markets were at record highs. Selling in a panic is almost always an exercise in wealth destruction – ever heard of 'buy low, sell high'?
If investors were happy holding Wesfarmers Ltd (ASX: WES) shares last week at near $47, why anyone would be selling today at $42.60 is beyond me.
Market gyrations can be scary, but I think if investors stick with their strategy and their goals, everything will be alright in the long run. Fool on!