It's been a particularly bruising six days for the S&P/ASX 200 (INDEXASX: XJO) and the broader Aussie share market. Everything has been taken down at least one notch and some shares more than that. ASX blue-chips are down, growth shares are down more – in fact, finding winners over the last few days has been a bit like playing Where's Wally.
But I'm sure many of the investors who were lamenting the market at all-time highs two weeks ago would be now 'holding off' on buying more shares because they're 'waiting for the bottom'.
Cash is a limited resource after all, so why wouldn't you wait to get the best bang for your buck and 'buy low, sell high'?
Can you 'buy at the bottom'?
That all sounds fantastic. Why wouldn't you buy at the bottom if you could, considering it's the mathematical point of maximum value… Well, here's the big problem with trying to buy at the bottom. No one knows where the bottom is, until it's already passed of course.
Share markets aren't machines that produce predictable patterns for us investors to exploit. A bear market (a period in which stocks trend down) is not defined by a straight line down followed by a straight line up. If the ASX spends the next three weeks going lower (hypothetically here), all chances are that it won't be fifteen days of red. You might have a couple of dead cat bounces or rallies, followed by the resumption of losses.
The road to finding 'the bottom' is full of traps, smoke and mirrors – and most seasoned investors avoid it altogether. I would humbly suggest following their lead.
How do we invest in this ASX market then?
Well, if you're an investor who only invests in passive index funds, I would continue along your plan as usual. You might want to add some additional funds when you see fit, but don't do the 'timing' thing!
If you're an active, stock picking-type investor, then just keep your eyes on your favourite companies and if they look attractive, go for it! I myself try and use an 'averaging down' (if it's down, buy a bit. If it drops more, buy a bit more) mentality when buying companies in a correction.
None of us know when the markets will turn around or fall further. So invest prudently, be careful but decisive and stick to what you know. If investors stick with a simple plan such as this, it's my view that we'll all come out the other side in good shape!
