Today is the kind of day that will put short-term investors on edge. You know, the kind of investors who were greedily eyeing the huge share price gains of leading tech and healthcare shares and decided to pile in for a quick buck.
Short-term gains are broadly going backwards today, with the S&P/ASX 200 Index (ASX: XJO) down 2.7% in early afternoon trading.
Tech share prices are among the hardest hit. The S&P ASX All Technology Index (ASX: XTX), which tracks 50 of Australia's leading and emerging technology shares, is down 4.4% intraday trading.
ASX shares are broadly following the lead of US share markets, which all lost ground yesterday (overnight Aussie time).
The S&P 500 Index fell 3.5% while the tech-heavy Nasdaq Composite Index lost 5.0%.
All the fabled FAANG shares lost ground, with behemoth Apple Inc. (NASDAQ: AAPL) leading the way down. Apple's share price fell 8.0% by the closing bell. A bit of back of the napkin maths tells me that works out to more than a US$160 billion (A$216 billion) daily loss.
Some of today's share price losers… and winners
Here in Australia, online retailer Kogan.com Ltd's (ASX: KGN) share price is among the biggest fallers today, down 11.2% at time of writing.
Buy now, pay later (BNPL) giant, Afterpay Ltd (ASX: APT)'s share price dropped more than 7% at the open, but has regained some of those losses and is currently down 4.6%.
Of course, as the old saying goes, it's a market of shares, not a share market. And while the overall indexes are falling, there are some big winners on the ASX today too.
There are always opportunities, if you know where to look for them.
Why you should keep these short-term share price falls in perspective
After detailing some of the daily moves for you, I'll now recommend you largely ignore it.
You see, the rapid share price gains enjoyed by many companies over the past months, particular technology shares, was never going to continue apace. At some point retracements are inevitable. And at some point the rate of growth will slow.
Let's take the ASX All Tech index as an example.
From 23 March through to yesterday's close, the index of 50 leading ASX tech shares had gained 110%. That blistering recent growth doesn't mean these shares don't have further growth ahead of them. I believe many of them do. But they won't keep doubling in price every 5–6 months.
And that's okay. At least, if you have a long-term investment horizon, rather than looking to double your money in short order. That way you can ride out the share price dips and let the power of time and compounding grow your wealth.
Kogan's share price, for example, is still up 157% in 2020. And Afterpay's share price is up 159% this year. As for the Nasdaq, it's still 27% higher than it was on 2 January.
Now there may well be some more short-term falls to come. But long-term, the well managed companies with solid balance sheets and good growth outlooks should continue to deliver patient investors healthy share price gains.
What the experts are saying about the share price retracement
If you're feeling anxious watching the share prices of some of your favourite companies head lower today, don't be. In fact, turn off your finance screens and tune into something else.
The current retracement was broadly expected. And as Alec Young, chief investment officer at Tactical Alpha says, healthy even for the broader market (as quoted by the Australian Financial Review):
Frankly, the deeper the pullback in tech, the healthier it is for the overall market. The market was overbought, there were too many people chasing the tech names. It's all healthy. The valuations have been stretched.
Randy Frederick, the vice-president of trading and derivatives for Charles Schwab in Austin Texas, agrees:
Some of the stocks have gotten a little pricey, and what the actual cause is to spark this selloff is difficult to say. The leading sector for quite a long time has been the Nasdaq, which is very heavily weighted in technology stocks so people just saw this as an opportunity to take the profits off the table.
There's nothing wrong with taking profits off the table if your investment horizon is months and not years. But unless you need the money for other purposes, history shows that staying invested in quality shares is among the best ways to growth your wealth over time.