The market is a drama queen. It constantly chucks hissy fits when the unexpected happens. At the start of the year, the Australian share market was already in a bad mood. It carried over from 2015. Low commodity prices and beaten down banks encouraged the ASX 200 to drop more than 10% coming out of the gate.
The ASX hit a low of 4765.3 point in early February. As you can imagine, the market wasn’t giving much love to investors.
But, shortly after, things seemed to be OK. The market started to pick up, and all was rosy. Then Britain went and did something unexpected. They voted to leave the European Union. Of course, our market didn’t like it one bit. Investors were back to eating dog food.
European banks got the worst of it. But, within weeks, the whole situation blew over. The ASX 200 recovered, hitting a high of 5587.4 points in August. It was a 17.25% climb from its low in February, and a 5.5% climb year-to-date.
But, as you’ll already know, the market didn’t stay happy for long. Earnings season was a disappointment, and investors were preparing for a long period of low growth.
Mid-September losses wiped out a lot of the progress that was made in July. Many investors are now wondering if the clouds will soon part. Will we see a rally towards the end of 2016?
Various equity strategists don’t think so. They’ve warned investors not to count on a rally to make up for losses made throughout the year. They’ve stuck to their year-end targets of around 5500 points for the ASX 200. So the high in August could very well be the 52-week high for 2016.
Or it might not be. To be honest, you shouldn’t really care.
Sticking to your guns
If you’re a value investor, or a microcap trader, you shouldn’t pay attention to market volatility. The only reason to keep track of daily market movements is if you’re a day trader — and sometimes not even then.
Market movements sometimes have no reason. And there is no point trying to figure out why it is up one day and down another.
Instead you should be sticking to a plan you’ve already laid out. If you’re targeting stocks with great financials and good prospects for growth, then focus on that. If you’re trying to punt on microcap stocks sticking to a strategy where your gains make up for your losses, stick to that.
Having a plan before you even enter the market could save you thousands in advance. Of course, keeping up with the market might be beneficial in the long run. But don’t let it encourage you to make rash decisions you’ll later regret.
Junior Analyst, Money Morning
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