Recent market volatility has prompted investors to review their current holdings and investment strategies.
When stocks are falling, it can be daunting to buy them. But, according to Warren Buffett, who once famously said to be "greedy when others are fearful", this is exactly when investors should be jumping in.
Yesterday, the S&P/ASX 200 Index (ASX: XJO) fell nearly 2%, one of the sharpest declines in recent times. This was triggered by investor panic surrounding comments made by US President Donald Trump regarding tariffs. However, today, the market has rebounded 0.35% at the time of writing with no obvious catalyst.
Do the work in advance
One way of achieving great returns is to buy high-quality businesses at attractive prices.
A high-quality business includes strong revenue growth, high profit margins, a strong competitive position in a growing industry, and high insider ownership.
Such qualities typically do not change overnight. This means investors can research companies in advance to assess their business quality.
Companies that meet a certain threshold can then be compiled on a watchlist. When the time is right, and such companies trade at a certain price, investors can buy them without hesitation.
Be ready to buy
Waiting for the market to decline before putting in the work could be a costly mistake.
History tells us that the market can rebound at any moment. The most extreme example of a rapid rebound was during the coronavirus pandemic.
On 16 March 2020, the ASX 200 fell 9.7%, the largest one-day decline in 30 years. Over the next week, the market continued to fall, reaching its low point on 23 March. By then, the index was down around 30% from its previous peak. What followed was a huge bull run. By February of the following year, the ASX 200 had reclaimed a new all-time high. Investors who bought when the market was down were strongly rewarded.
This year, we have seen substantial volatility, with the market rebounding strongly on several occasions.
This demonstrates why it is crucial for investors to research potential investments in advance and have their watchlists ready to go. Those still busy researching could miss out on buying their favourite shares at a discount.
Feeling confident in the quality of the companies you own also provides peace of mind. This can be especially valuable if the market continues to decline.
