How to exploit the ASX's current weakness for long-term gain

Market weakness doesn't need to be the enemy. It can be your best friend.

| More on:

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 think it's fair to say that the Australian share market has had a disappointing year.

As things stand, the benchmark ASX 200 index is flat year to date before dividends. So, unless it has a heroic month in December, it's going to finish the year with a return well short of average.

However, seasoned investors recognise that periods of weakness like we are experiencing at present can be the key to long-term gain. Especially if you can identify high-quality ASX shares that are trading at a discount because of the market weakness.

A young man goes over his finances and investment portfolio at home.

Image source: Getty Images

Buying ASX shares at a discount

Right now when you look across the ASX boards, you will see some of the highest quality companies that the market has to offer trading far closer to their 52-week lows than their highs.

Companies like CSL Limited (ASX: CSL), ResMed Inc. (ASX: RMD), Treasury Wine Estates Ltd (ASX: TWE) immediately spring to mind.

Over the last decade, their shares have generated an average annual return of 15%, 16.4%, and 10.4%, respectively. This means that $10,000 investments in their shares would now be worth approximately $40,000, $46,000, and $27,000, respectively. That's a total of $113,000 from an original $30,000 investment.

And with their respective outlooks remaining very positive, according to analysts, and their shares trading at a discount to historical multiples, there's a real possibility that they could continue to beat the market over the next decade if bought today.

So, rather than focusing on what the market isn't doing this year, it may pay to think about what it could do over the next 10 years. And what investing in discounted ASX shares today could do for your portfolio during that time.

Overall, market volatility might be frustrating, but I think investors should view it as a buying opportunity.

Motley Fool contributor James Mickleboro has positions in CSL, ResMed, and Treasury Wine Estates. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended CSL and Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A woman shrugs and pulls awkward expression with her face.
How to invest

What could $50,000 in ASX shares become in 10 years?

Long-term investing allows returns and dividends to build on themselves.

Read more »

A woman looks internationally at a digital interface of the world.
How to invest

New to investing? Start with ASX ETFs and quality ASX stocks

This mix can build a powerful foundation for long-term wealth.

Read more »

Frazzled couple sitting out their kitchen table trying to figure out their finances or taxes.
How to invest

No savings at 50? I'd follow Warren Buffett's method to build retirement wealth

Compounding can still make a big difference, even if you start investing at 50.

Read more »

Man with his hand on his face reading a letter with bad news in it
How to invest

How to assess company debt as a new ASX share investor

Debt isn't always a bad thing. It's how it is used that matters.

Read more »

An arrow crashes through the ground as a businessman watches on.
How to invest

If the ASX crashes tomorrow, here's exactly what I'd do

When share markets fall sharply, many investors wonder what they should do next.

Read more »

Happy man at an ATM.
How to invest

How to turn $10,000 into $100,000 with ASX shares

Here's your guide on building material wealth in the share market.

Read more »

A woman in a fur coat adjusts her glasses made of gold dollar signs and pouts at the camera.
How to invest

The simple ASX investing habit that can quietly build serious wealth

The habit of investing regularly could quietly become one of the most powerful wealth-building tools.

Read more »

Group of thoughtful business people with eyeglasses reading documents in the office.
How to invest

Growth, value, dividends: 1 ASX stock in each category to buy immediately

There's something for everyone with these shares.

Read more »