The S&P/ASX All Ordinaries Index (ASX: XAO) is only just in the green today, up 0.25%. In the year to date, the 500 biggest ASX shares represented by the All Ords index have lost a collective 12%.
As every investor knows, it's been one seriously bumpy ride. And it's set to continue from here.
So, how do we get through this volatility without making mistakes? And how do we find the courage to jump into a turbulent sea of red to take advantage of opportunities?
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Investment theory is 'easy'… in theory
Fidelity International's head of investments Paul Taylor says investment theory is easy but "it's the execution that's hard".
In an article in the Australian Financial Review (AFR), Taylor provides some tips for ASX investors today.
First of all, he acknowledges the challenges that ASX investors are experiencing in 2022:
Periods of volatility and financial downturn present us with a great opportunity to buy good quality companies at reasonable prices, but it's difficult to put this into practice in an uncertain environment.
The disconnect between what we should be doing, and what we actually do is caused by distractions or "noise".
5 tips for buying ASX shares today
Here is an abridged version of Taylor's opinion piece in the AFR today.
1. Focus on what is important. What's most important can vary from company to company, but essentially the aim is to peel back the layers of often interesting but unimportant information. Think of it as creating a 90-second elevator pitch. … the essence of your investment theory.
2. Facts versus emotions: To make good investment decisions, it's important not to get swept up in emotion and concentrate on the facts. My best days are when I am out talking to companies and getting a 360-degree view of their operating environment. My worst days are generally when I'm sitting at my desk watching the market go up and down. This is when I risk being sucked in by emotion and making decisions based on sentiment rather than fact.
3. Long term versus short term: I don't think I can remember a time when we've been confronted by so much short-term noise. Inflation, cost-of-living pressure, geopolitical tensions, supply chain disruptions, pandemic hangover, erratic weather … But how much of this will be relevant in five or 10 years' time? As investors, it is important to have a longer-term view and remember the fundamentals.
4. Simple versus complex: We all know and have probably, at some point, used the pros-and-cons concept to make a decision. In investing, this can sometimes muddy the water. I like to focus on the core reason for holding a stock. The No.1 reason it should be added or removed from the portfolio. Simplifying the process helps to screen out noise and keep me focused.
5. Proactive versus reactive: Being proactive involves making thoughtful decisions in line with your investment goals rather than allowing the market to push you around. So, evaluating companies on their fundamentals and asking, "is this going to be a good or better company in five years' time?"
