No doubt you remember that famous scene from Crocodile Dundee where a thug tries to scare Mick Dundee into handing over his wallet by threatening him with a knife. Mick casually responds by pulling out a mini-sword of his own and warns his assailant, 'that's not a knife. THAT's a knife'.
I was reminded of that scene yesterday when the ASX 200 fell 2%. Many stocks fell by more than that, particularly those affected by the plunging oil price. Woodside (ASX: WPL) fell 4%, Origin (ASX: ORG) 5% and Santos (ASX: STO) fell 10%.
While no one likes losing money, the falls must be put in perspective. The All Ordinaries Accumulation Index fell 21% in the five months to 26 Sep 11, while at the height of the GFC in March 2009 it had fallen 51% from its peak in November 2007.
Yesterday's fall is even less significant when you consider the index has increased 112% since its nadir on 6 Mar 09 and 52% since September 2011 when Europe looked liked it was going to tear apart.
Far from causing you to panic, you should welcome the latest opportunity to buy cheap stocks for the long term. Yesterday's fall will be forgotten by next week, which is why you should ignore the headlines and focus on what's important.
At Intelligent Investor Share Advisor we follow a value investing approach by concentrating on businesses that we understand, that offer a margin of safety due to their high quality or cheap price (preferably both) and holding them for the long term as part of a diversified portfolio that can compound our wealth as fast as possible without taking large risks.
While some of our small-weighted positions in the resources sector in particular have been hurt by the recent carnage, our model portfolios have barely been affected as we've been warning about the impact of a slowing Chinese economy for three years. Even better, most of our core recommendations are benefitting from a lower Aussie dollar or falling interest rates.
You didn't have to be a genius to see this coming, but you did have to act early and be patient. Being patient is your biggest edge over the pros, yet it's in increasingly short supply on the stock market these days. The average holding period for a stock has reportedly fallen from four years at the end of World War II, to eight months in 2000, two months by 2008 and now possibly five days.
If like us you believe that making money is all in the waiting, then yesterday's falls have made several stocks on our Buy list even more attractive, and we expect to add another stock or two soon as a direct result of Mr Market's panic attack.
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