The ASX share market regularly goes through volatility. Share prices moving up and down isn't surprising – trades are being made by different buyers and sellers every day. But a stock market crash opens up a lot of opportunities.
When I'm about to make an investment, I want to buy shares as cheaply as possible.
People don't just decide to sell their shares for 30% or 50% less in normal conditions. It takes something significantly worrisome to cause a share price to drop. A global financial crisis (GFC), a global pandemic, and rapidly rising interest rates have triggered share market sell-offs over the last two decades.
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Investment advice about being greedy and burgers
I think that Warren Buffett is one of the best investors of all time. While the investment returns he has generated have been incredible, it's the extremely wise pieces of advice that he has shared with the public over the decades that, to me, make him one of the most revered figures in the investing world.
The first piece of investment advice I'm going to share is one that most readers have probably already heard. It's easy to get caught up with the booms and busts of the market cycle. But, try to keep this in mind:
Be fearful when others are greedy and greedy when others are fearful.
In other words, be careful with your money when valuations are high and frothy, and get busy buying when the share market goes through a hefty decline.
Warren Buffett also said this in 2001:
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.
ASX share opportunities galore?
During early 2020 and through 2022, we could buy most ASX shares for much cheaper prices.
I accelerated my wealth-building significantly during 2020 and 2022 by picking my favourites at beaten-down prices.
I'll give a couple of examples of how this can turbocharge wealth.
First, imagine company A has a share price of $100 before a market crash. It then falls 50% to $50. If I buy it at $50 and then it recovers to $75 in six months, I've made a 50% return even though it's still down 25% from the starting price. But, I'd only choose a business I think has a good long-term future with growth.
I think the Adairs Ltd (ASX: ADH) share price is a great example of this in action.
Between the February 2020 peak and the March 2020 bottom, it dropped more than 70%. By July 2020, it was up 250% from that low. By April 2021, it had risen more than 600%.
Between 31 December 2021 to 17 June 2022, the Adairs share price fell around 60%. Between the June 2022 low and today, it has risen close to 40%.
While we're not currently seeing 52-week lows for many names, I think there will be more volatility ahead, enabling us to buy at better prices.
If/when there is another major decline in the stock market later this year, I'll be eager to snap up my favourite ASX shares at cheaper prices.
