I've been taking advantage of this ASX stock market correction to invest in a number of compelling ideas. I think this period can help me grow wealth at a quicker pace.
It's not often that the ASX share market goes through this level of volatility. Yet, this was the second time in three years that the share market has gone through a major decline. The other plunge was the COVID-19 crash, but that was a fairly short-lived drop.
Hamburger shopping
For me, while some people pull back from investing during times of weakness, I think that's a good time to go hunting for opportunities.
One of my favourite quotes from Warren Buffett could provide wise advice during this uncertain time. In 2001, the sage of Omaha said:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying – except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
To me, it makes total sense to invest when the ASX shares we want are at a discount, rather than expensively priced.
I see some very solid businesses that are down substantially, such as the Xero Limited (ASX: XRO) share price and the Wesfarmers Ltd (ASX: WES) share price.
Higher interest rates may justify some of the decline in valuation terms, but they are down heavily regardless of what the central banks are doing.
Why I'm taking advantage of this ASX stock market correction
Time will tell what this tricky period does to the earnings of businesses. But I do know that many share prices are now lower than they were last year.
For many names, we have seen a significant decline in the price-to-earnings (p/e) ratio.
If a business is currently at a p/e ratio of 20 after a share price decline due to the uncertainty, but if the p/e ratio then rises to 22 simply because some investor confidence returns, that's a potential 10% capital return.
Another example of how this correction can help grow wealth is through higher dividend yields, improving the annual cash returns.
For example, if a company had a dividend yield of 5% before the decline and then the share price dropped 20%, the dividend yield would be 6% for prospective investors. An extra 1% per annum could make a noticeable difference to wealth-building over a decade.
Even if investors don't want to invest in any specific names, they can use the volatility to buy a piece of the whole global share market with an exchange-traded fund (ETF) like the Vanguard MSCI Index International Shares ETF (ASX: VGS).
I don't know when the next crash will be, but I don't think we'll see this level of uncertainty very often, which is why I view this period as a limited-time offer to buy discounted ASX shares.
