Around $120 billion has been wiped off local shares in 2016. Photo: Jessica Hromas “It’s about buying good, quality companies that have strong businesses through cycles,” Ross Barker, managing director of AFIC, said. Photo: Adrianne Harrowfield
Blue-chip stocks such as BHP and Rio have been two of the biggest market casualites, shedding 40 per cent and 24 per cent respectively since last year. Photo: Michele Mossop
China fears! Billions of dollars lost! Unprecedented volatility!
With investment markets in full blown panic mode, two listed investment company stalwarts are advising investors to keep cool heads as they wade through some of the most volatile times on record.
Tom Millner, chief executive of the $900 million BKI Investment Company, urges investors not to see red despite nearly $120 billion wiped off the Australian share market since the start of this year.
Ross Barker, managing director of the $6.2 billion Australian Foundation Investment Company (AFIC), believes now is a great time for investors to cherry pick where to put their funds.
These are their investment tips for navigating through the volatility in 2016: 1. Don’t jump
As the markets yo-yo with gains and losses throughout the trading day, Mr Barker has this to say to investors: “Don’t panic.”
Herd or mob mentality often permeates the market when investors dump stock in a state of panic, resulting in the overselling of companies.
Australian shares tumbled to a 2 1/2-year low on Wednesday as investors worry about China’s growth prospects and slowing global commodity markets.
“People get caught up in the mentality of the moment and they can often sell good things when they shouldn’t be selling,” Mr Barker said.
“There’s concerns about China but we’re still confident about the growth prospects of the economy.” 2. Take your time
That is Mr Millner’s response to the panicked selling since the start of this year that has spared few companies on the ASX.
Casualties such as BHP Billiton and Rio Tinto, two of the largest resources stock on the sharemarket, have shed 40 per cent and 24 per cent respectively since last year.
But Mr Millner remains confident major Australian resources companies exposed to commodities such as oil, coal and copper in particular will bounce back as the imbalance between supply and demand is adjusted and the Australian dollar continues its descent.
He believes large resources companies may rebound over the next 12 to 18 months.
“It’s just short term noise – so be patient,” he said. 3. Buy quality
If a company is temptingly cheap but there’s little basis for future growth, don’t buy it.
“Stick with quality is my advice,” Mr Barker said about picking stocks amid the market downturn.
Healthcare and diversified financial stocks are AFIC’s picks thanks to an ageing population, while companies that source their revenue from overseas markets are also attractive.
The LIC has bought stakes in companies such as annuities giant Challenger and Macquarie Group.
“It’s about buying good, quality companies that have strong businesses through cycles,” he said. 4. Stay for the long haul
“We tend to try and hold a stock for at least 10 years,” Mr Millner said.
While the thought of clinging to a company for a decade might not be every retail investor’s cup of tea, holding a stock for a few years rather than dumping them at the first sign of trouble could yield strong growth potential.
Investors who bide their time and reap the dividends from blue chip companies or businesses with strong fundamentals will benefit through the volatility.
“We’re in this for this for the long haul, and we do like the thematics of healthcare in particular with an ageing population.”
BKI has been buying stock in Ramsay Healthcare and Sonic Healthcare as part of their long term investment strategy.
The company returned 10.9 per cent for the year to December, beating the S&P/ASX300 Index’s 2.8 per cent over the same period.