Investor warning: Time for sensible and 'boring' ASX shares

Forager Funds boss reckons stock markets have entered a new phase, and it's time to take a cold shower and return to the old reliables.

This year kicked off with a bang after a bunch of Americans conspired to plough their money simultaneously into a failing bricks-and-mortar retailer.

Shares for GameStop Corp (NYSE: GME) then surged from US$20 to as high as US$483 in just a couple of weeks.

And with that, the term "meme stock" entered the mainstream lexicon.

There's been a massive influx of new and young stock investors since the COVID-19 pandemic shut everyone in at home last year. 

Add to that the share market's spectacular recovery from the March 2020 crash and it's not entirely a surprise that there is a crowd always seeking to jump on the next moonshot stock.

But, according to one expert, it's now time to take a cold shower.

sad party goer sitting alone after celebration

Image source: Getty Images

Watch out, it's 2017 all over again

Forager Funds chief investment officer Steve Johnson said that his funds, including the Forager Australian Shares Fund (ASX: FOR), had a fantastic time enjoying the fervour for ASX shares in recent times.

"For us, being agile, open-minded and willing to be contrarian was more important than ever last year. It allowed us to invest in a collection of unloved businesses at once-in-a-lifetime prices," he wrote in Money magazine.

"And it paid off. The 2021 financial year was the best on record for Forager across both our Australian Shares Fund and International Shares Fund."

But ASX shares were now entering a different era, and the familiar indicators have Johnson worried.

"Right now, interest rates remain at record lows, stock markets are trading at all-time highs, people are inventing new metrics like revenue multiples to justify absurd prices for growth stocks, inflation is becoming a serious concern and COVID resurgences are weighing on the economic recovery," he said.

"More importantly, there are very few pockets of undue pessimism."

The conditions remind Johnson of 2017 when his funds tried to keep looking for hidden gems — then ate humble pie for 2 years.

So faced with the same situation now, he calls on investors to get serious.

"It is time, once again, to be thinking about the benefits of safe and boring," Johnson said. 

"Once again, like 2017, investor obsession with hyper-growth and high returns has left some of these stocks neglected."

Your ASX shares don't always have to stand out

According to Johnson, his team learned an important lesson from the difficult 2018-2019 period.

"You don't always need to be doing better than the crowd," he said.

"There is a time and place for contrarian bets. And there's a time for playing it safe."

Counterintuitively, taking a simple investment strategy is not actually that easy after a period of finding shooting stars.

"To turn to our loyal client base and say 'you know how we look for opportunity in unlikely places? Well, we just bought Downer EDI Limited (ASX: DOW)'," said Johnson.

"That doesn't sit well with how we view ourselves or what our clients have come to expect. And that's what makes it so hard."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Investing Strategies

Two men in suits face off against each other in a boxing ring.
Test Only

Wesfarmers vs Woolworths: Which ASX dividend share looks better this month?

I compare Wesfarmers and Woolworths head-to-head to see which ASX dividend share is better value and income for investors right…

Read more »

Piles of increasing coins alongside an hourglass.
Growth Shares

Why I just invested $1,500 into this top ASX growth share

I’m bullish on the future of this ASX growth share…

Read more »

Couple on their laptop in their home kitchen.
Investing Strategies

Top ASX shares to buy in October 2026

I take a closer look at three ASX shares I would be happy to put fresh money into this month.

Read more »

Woman looking at data on her laptop.
Growth Shares

3 ASX 200 shares I would buy and hold for 10 years

These three businesses have the sort of growth runways I want for a 10-year investment.

Read more »

Person holding a blue chip.
Blue Chip Shares

Fortescue vs National Australia Bank: Which ASX blue chip is the better buy this month?

Fortescue vs National Australia Bank: Which one gets my nod as the better buy right now?

Read more »

Cheerful boyfriend showing mobile phone to girlfriend with a coffee mug in dining room.
Blue Chip Shares

Why I'd buy CBA and Coles shares in October

I take a closer look at two ASX shares I would consider putting fresh money into this month.

Read more »

A man points at a paper as he holds an alarm clock, indicating the ex-dividend date is approaching.
Dividend Investing

10 ASX shares with ex-dividend dates next week

Harvey Norman, MFF Capital Investments, WAM Capital, and other stocks go ex-div next week.

Read more »

Smiling woman listening to music and using her phone.
Dividend Investing

AGL Energy vs Wesfarmers: Which share delivers better passive income?

AGL Energy offers a bigger franked dividend yield than Wesfarmers—here's which ASX stock I'd pick for passive income.

Read more »