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.

| More on:
sad party goer sitting alone after celebration

Image source: Getty Images

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

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.

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

A mle runner is in an awkward pose as the approaches an unever part of a running track through a forest with tall trees and sunlight shining through them.
Investing Strategies

‘Strong growth’: Expert names 2 ASX shares to buy for the long run

In a turbulent year like 2022, sometimes you just have to take a step back to find companies that have…

Read more »

Man sitting at a laptop in an office throws a book into the air and cheers.
Broker Notes

2 quality ASX shares Wilsons just bought

One medical and one lithium stock have had their exposures increased in the advisory's portfolio.

Read more »

Two boys with cardboard rockets strapped to their backs, indicating two ASX companies with rocketing share prices
Investing Strategies

2 types of stock portfolios primed to beat the market: experts

We learned earlier this week which portfolios to avoid. Now let's take a look at the ones that have the…

Read more »

Two men cheering at laptop
Broker Notes

2 ASX shares that Morgans would buy after excellent results

Experts have dissected the reporting season and reckon this pair of stocks look great for the future.

Read more »

A couple sit in their home looking at a phone screen as if discussing a financial matter.
Investing Strategies

ASX shares are rallying! Here’s what to do now: experts

Don't get carried away, because we may not have seen the bottom yet.

Read more »

A man sits wide-eyed at a desk with a laptop open and holds one hand to his forehead with an extremely worried look on his face as he reads news of the Bitcoin price falling today on his mobile phone
Investing Strategies

ASX investors beware: Watch for 2 red flags in your portfolio

Everyone has their own risk appetite, but typically if your mix of shares looks like one of these two profiles,…

Read more »

Three people run in a race through deep mud and puddles of water.
Investing Strategies

3 rising ASX shares to buy that have passed the bottom: expert

Grab these recovering stocks before they become even more expensive, says Michael Gable.

Read more »

Two boys lie in the grass arm wrestling.
Investing Strategies

‘Cult following’: Expert names 2 ASX shares worth buying in August

There are plenty of catalysts to choose from during reporting season. Here's a pair of stocks that might move upward.

Read more »