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How to handle ASX share market volatility

Volatility on the ASX share market seems to be increasing. Seeing the share prices of your investments drop could make it harder to sleep at night.

But, the share market is meant to be volatile. It’s rare for there to be almost two years of good returns.

The last few weeks has seen longer-term gains lost. The drop has happened very quickly for some ASX shares like Afterpay Ltd (ASX: APT), Xero Limited (ASX: XRO) and Temple & Webster Group Ltd (ASX: TPW).

It’s easy to say “buy low (and sell high)”. But what are some useful things to think about this volatility?

This moment will pass

There has been many periods of volatility over the decades. Every time, those events fade in history. Brexit? The GFC? The dot com crash? It’s all history. Historically, the share market has continued to grow over time.

Rising interest rates, COVID, whatever investors want to say is causing this crash, it’ll pass too. If you’re already invested in good businesses then those companies will probably keep growing over time and recover any declines.

The ASX share market is simply a live auction where other investors are telling you how much they are willing to buy your shares, or sell shares to you at that moment. You don’t need to do anything when prices go up or down. For me, that’s a comforting aspect and lets me look at daily price movements more calmly.

Choose investments you’d be happy to buy at cheaper prices

Deciding to sell something only because it’s going down might be as silly as buying something simply because it’s going up.

I don’t want my investments to fall. However, if they do drop then I think they would be even more attractive to buy because I can get great businesses at cheaper prices. I’m confident with the idea of that investment and times like this represent an opportunity to me.

If an investment drops and that doesn’t make you want to buy more, but instead makes you fearful, then it may be worth considering how much conviction you actually have. It’s human nature to want to avoid hurt/loss, but I’d also point you back to “this moment will pass”.

What are your favourite investors doing?

Sometimes it can be useful to see what some of the world’s current best investors are doing in the ASX share market. During the GFC over a decade ago, Warren Buffett famously wrote that:

“I’ve been buying American stocks. A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”

I think that’s a really good rule. Whilst the share market is dictated by earnings and so on, investor sentiment can also have a big impact, particularly in the short-term. I love opportunities to buy shares for a cheaper price because it can accelerate my wealth-building and that’s how I’m going to view declines in 2022. For now, I think something like Temple & Webster is worth thinking about after a steep drop.

If you’re looking to learn how to do your own ASX company valuations, take our free share valuation course, which takes you through 6 common share valuation techniques, step by step.
Or try our Beginner Shares Course if you’re just starting out. Both are free.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.