The biggest mistakes investors are making in today's share markets

The world is changing faster today than at any time since the 1940s. Don't let the rapid changes lead you down the wrong investment path.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The world is changing faster today than at any time since World War II unleashed massive political, cultural and technological transformations. And it's leading many share investors to make some hasty, costly decisions.

Sure, there have been some other revolutionary developments since the 1940s.

Jetliners ushered in the era of international travel for work and play. The internet changed so many aspects of how we live our lives I won't begin to list them here. And the smartphone came around to enable everyone to carry the internet around with them in their pockets or purses.

These – and a number of other developments over the past 80 years – have seen the share prices of companies that weren't able to adapt plummet. On the flip side, companies with nimble management that got ahead of the curve saw their share prices soar.

We're seeing the same thing play out today, only much faster.

It took decades for the advent of affordable air travel to wholly disrupt the previous travel and leisure business models. It also took many years for the internet – which went live as the World Wide Web in 1991 – and smartphones to upend businesses that were slow to embrace the changes they unleashed.

The more gradual pace of those changes gave investors more time to position their shareholdings into businesses likely to prosper from the changing operating environment.

But society's transformational responses to the coronavirus pandemic – from governments to businesses to individuals – are happening in the virtual blink of an eye, prompting many investors to make hurried decisions.

Transformational changes in the blink of an eye

Who would have thought back on New Year's Day that 2020 would see international borders slammed shut and Australia's own state borders sealed and patrolled by the military?

Who would have imagined that Australia – and many developed nations around the world – would post record quarterly GDP declines. Or that millions of people would be working, shopping and socialising from home?

But perhaps the biggest change we've seen in the past 6 months is governments and central banks pulling out all the stops to keep their economies and share markets ticking along.

Official interest rates across developed nations are at or near record lows, while government stimulus packages are at record highs. That change transpired in a matter of months. But it's unlikely to wind back anytime soon.

Yesterday the Reserve Bank of Australia (RBA) deputy governor, Guy Debelle addressed the Australian Industry Group. He said it was "highly unlikely" the RBA would raise the official cash rate from the current record low 0.25% any time in the next 3 years.

With rates this low, Debelle echoed central bankers around the world in encouraging state and federal governments to take on even more debt to support the economy. He said:

The increase in debt is definitely manageable. Moreover, there is not, in my judgment, a trade-off between debt and supporting the Australian economy in the current circumstance…

This is particularly so with interest rates at their historically low levels, where the growth benefit from the fiscal stimulus will improve the debt dynamics and help service the debt in the future.

Fast moving share prices and ill-planned decisions

So many changes in so little time makes for an uncertain environment. And if you needed any proof that share markets hate little more than uncertainty, pull up a chart of the S&P/ASX 200 Index (ASX: XJO).

Everything looked to be going along nicely until 20 February, with the ASX 200 up 7% for the year. Then panic set in, and the index plunged 37% by 23 March. At which point government and central bank stimulus came pouring in, and the ASX 200 rocketed 35% higher by 10 June.

These are the sharpest corrections and recoveries ever for the top 200 Australian shares.

And the rapid pace of change has led many investors to make costly mistakes.

Like ignoring companies with long-term share price growth potential for the latest hot tips on social media. Those hot tips might keep heading higher after you buy shares. But you could well find yourself buying near the highs and then opting to cut your losses and sell near the lows.

Which leads us to another often costly mistake investors make when share prices move so quickly. Trying to time the market becomes much more tempting when even 'boring' blue chips see their share prices tumble 37% only to rocket 35% or more higher in just a few months.

But calling the highs or lows in the markets is like trying to forecast the black or red on the next roulette spin. There are too many variables at work to do this with any consistency.

Two shares embracing the rapid COVID changes

We'll round this off with 2 quality shares with long-term share price growth potential.

First is US-listed, Walmart Inc (NYSE: WMT).

Walmart has been quick to increase its online presence as many shoppers chose or were forced to stay home. And yesterday (overnight Aussie time) Walmart upped its game with a novel drone delivery program.

As Boston 25 News reports:

Walmart Inc. is taking to the skies to expand COVID-19 testing. The retail behemoth launched drone delivery of self-collection kits on Tuesday to single-family homes within a 1-mile radius of the North Las Vegas Walmart location… The pilot program will be expanded to Cheektowaga, New York, in early October.

It's just a pilot program, mind you. But this is a good indicator of a blue chip share getting ahead of the rapid pace of pandemic driven change.

Walmart's share price is up 16% year-to-date and down 6% from its 2 September all-time highs.

On the ASX 200, few shares have been as well-positioned or quick to respond as online retailer Kogan.com Ltd (ASX: KGN).

Year-to-date Kogan's share price is up 176%, giving it a market cap of $2.2 billion. Kogan's share price is down 10% from its August 18 record highs.

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. 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.

More on Share Market News

A male ASX 200 broker wearing a blue shirt and black tie holds one hand to his chin with the other arm crossed across his body as he watches stock prices on a digital screen while deep in thought
Share Market News

5 things to watch on the ASX 200 on Friday

Will the market end the week on a high? Here's what you need to know.

Read more »

A diverse group of people form a circle at a park and raise their arms together.
Share Market News

Here are the top 10 ASX 200 shares today

It was a phenomenal day for ASX stocks this Thursday...

Read more »

A beautiful ocean vista is shown with a woman whose back is to the camera holding her arms up in triumph as she stands at the top of a rock feeling thrilled that ASX 200 shares are reaching multi-year high prices today
Bank Shares

Big ASX news: NAB shares hit 18-year high

The last time NAB shares were at this level was in November 2007.

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Broker Notes

5 ASX All Ords shares upgraded to 'strong buy' consensus ratings

Brokers upgraded their ratings on these ASX All Ords stocks last month.

Read more »

A couple cheers as they sit on their lounge looking at their laptop and reading about the rising Redbubble share price
Broker Notes

2 more of the best ASX 200 shares to buy in February

The broker is feeling very bullish about these shares. Let's see what it is saying.

Read more »

Multiracial happy young people stacking hands outside - University students hugging in college campus - Youth community concept with guys and girls standing together supporting each other.
52-Week Highs

These 11 ASX 200 shares are hitting new 52-week highs today

These shares are on form and hitting new highs today. Let's find out what is happening.

Read more »

A man sits in casual clothes in front of a computer amid graphic images of data superimposed on the image, as though he is engaged in IT or hacking activities.
Technology Shares

2 ASX tech stocks to buy during an anticipated 15% to 20% sector pullback in 2025

Expert reveals 2 of his favourite tech stocks and at what prices we should buy them during a dip.

Read more »

a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.
Share Gainers

Why BWP, Magellan, News Corp, and Winsome shares are pushing higher today

These shares are having a better day than most on Thursday. But why?

Read more »