Sick of the ASX falls? Me too!

No, it’s not comfortable, but here’s what I plan to do.

Kid with a brown paper bag on his head which has a sad face on it sits in front of an old style computer representing falling ASX 200 tech shares today.

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

I am so sick of down days on the ASX.

I’ve had enough.

So, I’m going to…

… just keep investing, anyway, because these things happen sometimes (unfortunately) but the overall direction of the market is still likely to be up — strongly — over the long term

That’s pretty much it.

That’s the formula.

It’s not secret.

It’s not magic.

But I will add something I’ve said before, to add some emphasis:

“The ASX has never yet failed to regain, then surpass, its previous highs.”

That’s not a guarantee, but unless we’ve seen the all-time peak for the ASX, I think it’s something that’s likely to happen again and again.

And if that’s true, here’s what the numbers say:

The All Ordinaries Index (ASX: XAO) closed at 7926.8 points on 4 January, this year.

As I type this, it’s at 7362.9 points.

If I’m right, and it goes back above its previous high – as it’s done every time – it’ll add 8% to get back there.

Then, in all likelihood, more from there.

Sure, it might fall first.

Maybe even by a lot. Or not.

We don’t know and can’t know.

But that’s just noise.

There’s 8% on offer, just to do something it’s always done.

And if it does fall further in the meantime?

Well, the gain, as we return to past highs – assuming that happens – will be even greater.

And if it doesn’t?

Well, we get to lock in that gain.

But what about individual companies?

It’s true that some have fallen by more.

A lot more.

Honestly, it depends.

If you own something that was stupidly overpriced in the past, your odds of making back that loss might be long.

Markets regularly get too excited (as well as too pessimistic) about some companies – particularly the ‘hot stocks’ that everyone is talking about.

Lithium? Maybe.

BNPL? Probably.

But others? Some will bounce out of their share price funk, once investors realise they have strong business models and bright futures.

No, I can’t tell you with certainty which is which.

Nor can I tell you how long it might take.

So you need to be diversified, and know what you’re buying and the risks you’re taking.

More often than not, the moonshots with huge upside potential also have a decent chance of exploding on the launchpad.

Those companies whose growth stories depended on them raising ever more capital from shareholders might be in for a rude shock as interest rates go up and risk appetites wane.

But some will do very, very well.

Now, some of those moonshots won’t explode on launch. And some profitable businesses with good cash flows might flounder.

The trick is to know what you’re buying, what you’re expecting, and your risk appetite.

Frankly, some companies whose shares have plunged 40%, 60% or 80% will be screaming bargains right now, with the benefit of hindsight.

Some will flame out.

If you’re a risk-seeking investor, that’s where I’d be shopping, as long as you have a seriously cast-iron stomach for volatility and you don’t mind a low success rate.

If not, I’d be looking at companies whose business models and cash generation are every bit as good, today, as they were six months ago, even though their share prices may have cratered.

This is not an ad, but for what it’s worth, we’re recommending one such company to members of Motley Fool Share Advisor this afternoon.

For all I know, the shares could fall tomorrow.

Maybe next week.

Maybe next month.

Or for the next few months.

Or not.

But if the cash generation capabilities of this company (and its ilk) are good enough, we’re happy to buy and wait for the market to come to its senses.

You don’t see too many entrepreneurs who sell out of their businesses just because of six or twelve month periods where buyers dry up.

You don’t buy and sell your home, multiple times a year, because the local real estate agent tells you there is fluctuating interest from buyers.

And yet, many of us are only too quick to let the market tell us what to think about the businesses we’re part-owners of.

Woolworths Group Ltd (ASX: WOW) shares were almost $32 a pop in 2014.

They fell to around $17.50 in 2016.

They were back to $41 by late last year.

And that doesn’t include dividends.

At $17.50, investors were probably pretty worried.

Some were, by definition, because they sold shares at that price.

Some held.

Others bought, or bought more.

Woolies paid 94c in dividends in the last 12 months.

That’s a 5.4% yield, plus franking credits, on the 2016 price.

Plus a rough doubling of the share price, between then and now.

It was easy to buy Woolies shares when the price was going up.

It was hard to buy Woolies shares when the price was falling.

It was hard to buy when the company’s Masters chain was bleeding cash and the company was shuttering supermarket stores.

And yet, we know how that ended.

I can almost guarantee – the Good Lord willing and the creeks don’t rise – that I will be writing about some of the 2022 laggards in five or six years’ time.

And in 2028, it’ll be obvious that we should have been buying shares in those companies, rather than fretting over the falls.

So, while others fret, I’m going shopping for shares.

Not because it’s comfortable. Not because this is (necessarily) the bottom.

But, as Warren Buffett has told us, again and again, we should be greedy when others are fearful.

Fool on!

Motley Fool contributor Scott Phillips 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 Scott Phillips.

More on Motley Fool Take Stock

a man raises his fists to the air in joyous celebration while learning some exciting good news via his computer screen in an office setting.
Motley Fool Take Stock

The most wonderful day of the year (or close anyway)

I get a little more excited than most.

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Motley Fool Take Stock

Don’t believe everything the CEO says

The CEO gilding the lily is often more persuasive than the person telling the unvarnished truth.

Read more »

A young man holds a small bottle of beer as he slumps sadly on one elbow in a comfortable chair with his head propped in his hand and staring into space with a dejected look on his face.
Motley Fool Take Stock

The new normal? Kinda like the old normal…

If anything is unAustralian, it’s four beers costing more than a pineapple.

Read more »

a person's legs and an arm sticks out from underneath a large ball of scrunched paper.
Motley Fool Take Stock

Why the RBA review will be a waste of time…

Waiting until inflation arrived, and was entrenched, before acting was a monumental mistake.

Read more »

man and woman analyse financial report and share price
Motley Fool Take Stock

Want to pay less tax? Or make more money?

You should be careful that you don’t let emotions lead you into making a big mistake.

Read more »

A little boy surrounded by green grass and trees looks up at the sky, waiting for rain or sunshine.
Motley Fool Take Stock

Our greatest national financial legacy?

Why it’s time for an Australian sovereign wealth fund – The Australia Fund.

Read more »

Motley Fool chief investment officer Scott Phillips
Motley Fool Take Stock

Market crash: A message from our CIO

Have we seen the absolute peak of human capitalism? I don't think so, which is why I'm continuing to invest,…

Read more »

A child covering his eyes hiding from a toy bear representing a bear market for ASX shares
Motley Fool Take Stock

Get ready for the bear market headlines!

We all think we’ll invest during a crash, but do we?

Read more »