Investing in ‘shine’ is a lot easier than investing in rain and hail. It’s understandable for investors to be nervous about the future prospects of the market in the short term. However, a wait-and-see approach is a sure way of missing out on fantastic opportunities on the S&P/ASX 200 Index (ASX: XJO)
Warren Buffett was quoted as saying “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”. This quote stands out to me because we sometimes think that share sell offs are negative, when in fact the market is offering quality for a discount.
Impact of fear
Fear can smash share prices for no company specific reason other than rain and hail on the market. A recent example of this is Afterpay Ltd (ASX:APT).
The Afterpay share price plummeted more than 40% in March, despite no specific news being released from the company that would prompt such a sell off. In a letter to shareholders, Afterpay said there has not been a material impact from the ongoing coronavirus crisis on its business.
I think at today’s price, Afterpay shares offer compelling value due to the company’s growth prospects.
Timing the market
People put off investment decisions waiting for the market to turn, only to find out they have missed out when it rallies. Markets move quickly from rain to shine.
Peter Lynch has said “I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.”
The best time to acquire shares is when you have the funds to invest, and discounted prices of quality companies means when the market rallies again, profits can be made.
Reward for patience
Instead of timing the market, time in the market is what delivers wealth to investors. To illustrate this point, let’s take a look at some ASX 200 companies from their listing dates:
Capital return %
|Commonwealth Bank of Australia (ASX: CBA)||1991||$5.40||$60.11||1013.15%|
|CSL Limited (ASX: CSL)||1994||$2.30||$304.11||13122.17%|
|Woolworths Group Ltd (ASX: WOW)||1993||$2.45||$35.50||1348.98%|
Commonwealth Bank, CSL and Woolworths have all performed exceptionally well for their investors over the long haul. These performances have come throughout the 1997 Asian economic crisis, the dot-com bubble in 2000, the 07–08 Global Financial Crisis, the 2010 Eurozone debt crisis and more.
COVID-19 is a very real threat and danger to the world economy and most importantly to people’s health and well-being. If we look at history in regards to other outbreaks, markets rise to new highs presenting an opportunity to investors. When that will happen is anyone’s guess, which is why patience is key to investing.
In my view, trying to time the market is next to impossible. Fear is a natural human response but it’s a contributor to locking in massive losses and missing out on potentially massive gains. Patience is the greatest wealth creation tool. Having said that, it’s prudent to keep an eye on the performance of the companies you are invested in, periodically.
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Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.