Use market wobbles to your advantage
While investors around the world watched share prices wobble this week, some spotted an opportunity.
David Beattie, chief investment officer of KiwiSaver provider Booster, said any time there was a market correction, fund managers would look to make the most of it.
When markets were steadily growing in price, there was little room to add value, he said.
But when there was volatility, there was a chance to pick up assets at a better price. ‘‘Active managers love volatility. The KiwiSaver managers won’t be panicking, there’s no danger of that. They’ll be looking fo things to buy.’’
If you want to use a drop in prices to your advantage – whether that’s this week or future market corrections – fund managers say there are some things you should, and shouldn’t, do.
Prices won’t necessarily bounce back by the same amount across the board.
Beattie said growth stocks, tech stocks, small-cap stocks and those on emerging markets tended to fall the most in price when there were market wobbles.
Rebecca Thomas, of Mint Asset Management, said investors should not just buy the stock with the biggest price fall. ‘‘Remember that there is always a flight to quality in terms of individual stocks and yield or reliable dividend income stocks also tend to do well when markets correct.’’
Clayton Coplestone, of Heathcote Investment Partners, said the ‘‘market’’ was a basket of stocks, some of which would be a sound investment, and some of which would not.
Investors should take the time to understand companies that interested them, he said. That might be those that were in their industry or those that they felt strongly had potential in the future.
‘‘Try to understand whether their forecasted earnings are achievable. A bit of common sense goes a long way here, as some companies will struggle to grow sales irrespective of market conditions.
‘‘The next step is to understand whether the company share price represents an inflated value, fair value, or is way under value.
‘‘There are plenty of experts around who can provide readily available insights into the company’s fair value.
‘‘The final step is actually the most important: patience. If you have a price per share in mind, then the investment discipline gets tested by knowing when to buy or sell when it reaches that price. Simply put; the rise and fall of markets can be an immense distraction for disciplined and patient investors who understand what they’re buying.
‘‘Good companies will continue to do well irrespective of what market turmoil is occurring.’’
John Berry, chief executive of Pathfinder Asset Management, said there was no approach that would be fail-safe.
‘‘For example, it is risky to look for shares that have fallen by more than the market average, and expect them to bounce back by more than the market. That may not happen,’’ he said.
‘‘I don’t favour short-term trading, but if I was to buy when the market was selling down I’d be looking for quality companies with reasonable valuations that have simply been sold down with the market.
‘‘If there is no bad news from the company and no change in earnings expectations, then the price fall has been driven by market sentiment. It should bounce back when the market does. It doesn’t mean you will make a fortune, but you may have been able to buy a quality stock at a reasonable price.’’