Another day, more volatility.
The ASX futures predicted we'd lose 3.5% here, after the S&P 500 was down 4.9% overnight.
So far this morning, the ASX has fallen 2.4%, but the rest of the day is likely to remain volatile.
As, in all likelihood, will tomorrow and maybe next week.
Possibly the week after, too.
See, at the moment, stock markets just don't know. They're trying to guess short term movements.
So, like sailing into a blustery and variable breeze, traders are tacking port and starboard, trying to work out what position to take.
But it's worth talking about what these moves mean.
See, a share price should reflect the future earnings — from here to eternity — for a given business. (Discounted, as the boffins say, to allow for the time value of money, and enough to compensate investors for the risk they're taking.)
So if shares are 20% lower today, essentially investors are implying that the value of all future profits — again, from here to eternity — will be 20% less.
Which, if you think about it, is a little hard to imagine.
Is a given company really going to earn 20% less — in totality over the rest of its existence — because of the current health pandemic?
No, it's not necessarily a rhetorical question. It's one worth asking.
Maybe, for a few companies, the answer is 'yes'. We shouldn't just assume otherwise.
But, if the answer is 'no', then you're getting a discount, compared to the same company's share price just a few short weeks ago.
That's the job of the investor: to tally up, either literally or figuratively, the future earnings of a given company and work out if that makes today's price attractive.
And, yes, the hardest time to invest can be when share prices are lowest, because that's when fear is at its maximum.
Does that remind you of a particular quote? Yep, Warren Buffett himself:
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
We are attempting to do the same. I hope you are, too.
And a quick reminder. I'll be hosting a Live Facebook Q&A at 12.30pm AEDT today — just over half an hour away.
Your fellow members and readers have already submitted their questions. I dare say they'll be similar to the ones you might have.
If you have the time, (maybe over a sandwich at lunchtime, if you're on the Eastern Seaboard, or over a coffee in the West) you might find it valuable.
Here's the link (and you can go there now and click 'Remind Me' if you want Facebook to let you know when we're about to start).
See you there, and as always…
Fool on!
