How to handle stock market turmoil

06.How to handle stock market turmoil

Stuart Condie
(Australian Associated Press)



This isn’t the first time stocks have fallen and it won’t be the last.

Scott Phillips, research analyst with financial services company Motley Fool, says kickings such as the one the ASX is enduring at the start of 2016 have historically made little long-term difference.

He points out that a $10,000 investment in the ASX All Ordinaries index 30 years ago would be worth $280,000 today.

“That was despite the `87 crash and the GFC and the tech crash, a couple of Iraq wars, terrorism and everything else,” Mr Phillips said.

“If you’re a long-term investor, these bumps, while they might feel big and scary, shouldn’t be a big concern.”


Checking stock prices daily is only going to stress you out, so remember you’re in it for the long haul and that trying to make money on short-term movements is best left to the professionals.

“When individual investors see the so-called big end of town doing what it’s doing, there’s always a tendency to believe that someone knows something you don’t. People think, `gee maybe something’s going on, maybe I don’t know what I’m doing’ and then go and follow that to some extent,” Mr Phillips said.

“That’s the hardest part: watching short-term traders act and trying to divorce yourself from that.”


An underperforming economy in China might not be great news but that doesn’t mean the end of the world. There are plenty of companies out there doing good business despite negative headlines.

“While the share price might jump up and down, Woolies aren’t serving any fewer customers because the Chinese markets are jittery, and IAG isn’t selling fewer insurance polices and BHP isn’t mining less iron ore,” Mr Phillips said.

“The Chinese market volatility is freaking out the financial markets, but the real world goes on. As long as you choose quality, you will do very very well over the long term.”


Look for value and a strong track record of revenue and profit growth. Mr Phillips highlighted conglomerate Soul Pattinson, Smiggle owner Premier Investments and Harvey Norman as solid options, and is suggesting investors look at companies that make life easier or life better.

“Business-to-business companies that help other businesses make money or save money are always a good place to be,” he said.

Angus Geddes, founder of Fat Prophets, says the big four banks represent good value after falling 18-30 per cent since March 2015 and that he is starting to get interested in the resources sector again.

“We’re seeing a lot of value out there: it’s a stock pickers market,” Mr Geddes said.

“The value is in abundance and it’s staring us all in the face. That said, you do have to really hunt for the opportunities.”


If you are tempted to cash out, make sure you compare the likely return to that from your share portfolio. The residential property market is cooling and already low savings rates are exposed to the possibility of another RBA rate cut. Where else are you going to go when, for example, the banks are still offering a dividend yield of about 10 per cent?

“Cash rates in Australia are at historically low levels and therefore the premium that the dividend yield has over the cash rate is at an historic high,” Mr Geddes said.


Yes, stocks have declined but they haven’t taken anything like the hit they took during the GFC, when the ASX200 dropped more than 50 per cent from its October 2007 high of 6,851 to about 3,145 in March 2009.

Mr Geddes says the GFC had a “profound impact” on companies and that balance sheets are considerably deleveraged compared to eight years ago.

“We’re going to have some volatility and some ups and downs but I don’t think stocks are going to fall off a cliff,”

“In the 4,800-4,900 level on the ASX200, I think we’re getting great value.”


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