Just for a moment I'd like you to imagine a promoter with a megaphone standing outside the ASX building, spruiking wonderful deals available inside.
Well, the promoter isn't there, but the bargains are, and not all of them are cheap $2 gifts that won't last a fortnight.
The ASX has been pounded – the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has dropped 17% in the past 6 months (since end of March), with many blue chip companies down even more.
The Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have dropped 27%, 25%, 24% and 26% respectively over that time. Although, that also has to do with a huge increase in the number of shares thanks to capital raisings and valid concerns over their earnings growth in future.
But for many other companies, the factors pushing the ASX down will have little or no impact on their businesses, but fear has driven investors to sell out – 'just in case'.
Blood plasma group CSL Limited (ASX: CSL) is down 4%, while Telstra Corporation Ltd (ASX: TLS) has seen its share price sink 12%. Ramsay Health Care Limited (ASX: RHC) has dropped 12.5%, and Cochlear Limited (ASX: COH) 9%.
The difference between the second group of companies and the banks also shows a number of important factors.
Diversification is hugely important. Defensive stocks like Telstra and CSL can help your portfolio through the tough times. The big four banks aren't guaranteed winners all the time. Having overseas exposure through companies with offshore earnings is an important consideration. Dividend yield is not the only factor investors need to consider.
Unfortunately for many sellers, by the time they are looking to get back into the market, the biggest gains are already likely to have been made and they'll have ended up selling at low prices and trying to buy back in at higher prices. As virtually everyone knows, that's a path to wealth destruction, not wealth creation.
Sure, we may see the market fall further from here, but that means more opportunities to pick up quality stocks on the cheap. Trying to time the market and pick the bottom though, is a mugs game. No one can do it successfully consistently.
Foolish takeaway
Rather than watching the huge falls in my SMSF and personal portfolio over the past six months like a witness to a car crash, I've battened down the hatches, selling only those stocks that had a worse outlook than when I bought them. Instead I've been buying quality stocks on sale, like Flight Centre Travel Group Ltd (ASX: FLT), REA Group Ltd (ASX: REA), Resmed Inc. (CHESS) (ASX: RMD) and Sirtex Medical Limited (ASX: SRX).
It's time to grab some more bargains.
