The ASX is certainly acting volatile in September. Before today's movement the S&P/ASX 200 Index (ASX: XJO) had fallen 4% in the month to date. Yesterday's drop of more than 2% may have caused a few investors to get nervous.
For various reasons people may decide to sell on these heavily negative days. I don't think that selling because of fear alone is a good idea.
I don't think that a business' valuation can change by 2% or 5% in one day just because of what the market is doing. The underlying value of a business changes over the years, but ASX shares usually don't see their future profit potential change significantly on no news.
So a good question is:
Are shares worth buying in times like this?
Warren Buffett, one of the world's greatest investors, has a great quote: "Be fearful when others are greedy, and greedy when others are fearful."
As investors one of the most important things for us is buying at good prices. When the share market falls in value you're obviously able to buy ASX shares at a lower price, though it's up to you to decide if it's better value.
I was a buyer of shares through the first COVID-19 crash during February, March and April. I thought it was a once-in-a-generation opportunity. It turned out to be a great, but short-lived opportunity.
The ASX is/was falling again, though I don't think we will see the market fall in September as low as it did during March. It could easily bounce back over the coming days.
Bear in mind that the official RBA interest rate is still extremely low. This goes some way to explain why some ASX shares are valued highly in the current environment. A business like APA Group (ASX: APA) which generates consistent levels of cashflow is valuable for income investors. Same with a major ASX blue chip share like Wesfarmers Ltd (ASX: WES), it has quite reliable profit.
How often do you get to buy ASX shares at much cheaper prices than they were before? It doesn't happen very often. The share market tends to steadily grow over the long-term, but it usually falls fast when it declines – and then goes back to rising. Those buying opportunities don't last long.
I think it's definitely worth buying ASX shares when they drop lower, why wouldn't you?
At the current prices I like the look of businesses such as A2 Milk Company Ltd (ASX: A2M), Citadel Group Ltd (ASX: CGL) and Pushpay Holdings Ltd (ASX: PPH)
Should you wait for dips to buy ASX shares?
The share market has proven to be a long-term wealth creation tool. It has returned 10% per annum – that includes the moments of declines.
If you only waited for major dips to buy then you may end up investing very infrequently. And your cash would hardly return anything with how low the bank interest rates are.
There are various studies, books and quotes that generally suggest that market-timing doesn't lead to outperformance. No-one can know what the share market will do. No-one could have predicted the severe March COVID-19 crash, nor the rapid recovery.
If you genuinely can't find anything good value to buy then I don't think there's anything wrong sitting on the cash for a little while. You don't need to invest instantly when you have access to money.
But if there is an opportunity, I think you should take it. You just don't know how long that ASX share will be at an attractive price for. I invested extra money during the volatility and I'll invest extra again if markets drop again. But I'm going to keep doing my monthly investing into whatever ASX share I think looks good value at the time.
