Time to go hunting

Why do the nation’s sharemarket participants seem reluctant to take advantage of recent sales?

Every boxing day, news outlets will show footage of excited shoppers trampling all over each other as they rush into their local department stores’ annual sales. The cheap prices force the shoppers into such a frenzy that fights have been known to break out. David Attenborough should be brought in to narrate it for his next nature documentary. It would surely be a big hit in today’s world of trashy TV.

The behaviour does make sense. People used to paying a premium all of a sudden find the thing they want on sale at cheap prices. Who wouldn’t take advantage?

Well, one group it seems reluctant to take advantage of sales are the nation’s sharemarket participants. Instead of seeing a sale opportunity, they tend to see something scary and head for the exits until things settle down.

The media doesn’t help: it’s easy to get worried when references to ‘routs’, ‘bloodbaths’ and ‘seas of red’ are thrown about.

But is sharemarket volatility really so bad? We know share prices rise AND fall. We know that the sharemarket crashes on occasion. We also know that after the crash, the market recovers.

Why do we fear something we know will happen and can easily be neutered by a long term investment strategy?

Here at Intelligent Investor, we see things differently. A sharp fall in the stock market isn’t a crash but the equivalent of the Boxing Day sales. It is these times when we hunt for our favourite thing – investment bargains.

As billionaire and co-founder of Oaktree Capital Management Howard Marks put it: ‘When everyone believes something is risky, their unwillingness to buy usually reduces its price to the point where it’s not risky at all. Broadly negative opinion can make it the least risky thing since all optimism has been driven out of it’s price.’

Warren Buffett put it more simply: ‘You pay a very heavy price in the stock market for a cheery consensus.’

Over the past few weeks, we’ve seen many great companies edging towards our ‘buy’ prices. Some have crossed that line and earned themselves upgrades; many others are getting very close – including blue chips like CBA (ASX: CBA) and Woolworths (ASX: WOW). We actually hope that the market comes down a little more so we can add these to our list.

So why don’t you put on your hunting outfit and join us? By the time you wait for the market to become ‘more normal’ the bargains will be gone.

Staff members of Intelligent Investor may own securities mentioned in this article.

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