How to make share market volatility your friend: AustralianSuper CIO

How does one handle volatility in a share portfolio?

Investor holds a bull and a bear in each hand.

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Ah, volatility… It can be both friend and foe to the ASX investor. While I’m sure all of us enjoy the wealth-compounding effects that can come from successful ASX share market investing, volatility is something we all usually have to deal with if we want to do so.

Volatility can be scary – no one likes to see the value of their hard-earned portfolio drop dramatically in value. But one expert investor likes to use it to their (and their members’) advantage. That would be Mark Delaney, chief investment officer (CIO) at the behemoth superannuation fund AustralianSuper. Delaney sat down for an interview with the Australian Financial Review (AFR), and it makes for some interesting reading.

How to handle market volatility, super style

Running the country’s largest superannuation fund is a challenging task. Being charged with the stewardship of millions of Australians’ retirement savings, as one could imagine, might make a CIO like Delaney dread volatility. But far from it, it’s something he accepts as inevitable. “Market prices always go from expensive to cheap. The key question is what do you do in that environment?” he says.

Not that Delaney is expecting a correction or crash. But he points out that most decades bring at least one major market plunge. As such, AustralianSuper is cutting back on its share market exposure in order to reflect the risks of possible hawkish multi-state central bank action that might be needed next year to put a leash on global inflation:

I think it’s very dangerous to be reactive in this sort of environment. Just have a broader perspective and trim into it… Prices will normalise – prices are expensive now – and then we could take advantage of better prices.

Although volatility and market crashes can be scary, Delaney is sanguine, saying that all investors “need to accept that there will be times when they lose money”.

“Your focus of control is actually yourself and how you’re feeling and what you’re doing,” he says. “Investing through a bear market is a formative experience every investor needs to go through.”

So there you have it. That’s what the investment officer of Australia’s largest super fund thinks about volatility. Remember, some of the best investors in the world love periods of market panic so they can “take advantage of better prices”, as Delaney puts it.

As the great Warren Buffett once said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” Something to keep in mind this Christmas!

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Motley Fool contributor Sebastian Bowen 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.

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