Did you lose any sleep over the past week over sinking share prices on the ASX and global markets?
If so, you're not alone. Although fretting over the daily price swings of the shares in your portfolio is a mistake. Be those short-term swings higher or lower.
Unless you're day trading, in which case best of luck, the daily and even monthly share price moves of the companies you've chosen to invest in don't mean much. Not if you're a buy to hold investor with an investment horizon of at least several years.
As buy-and-hold investors, the only time you need to fret about selling any of your shareholdings is if the original business case for investing in them has changed. If not – meaning they're still well managed, with solid balance sheets and a good growth outlook – then it's best to ignore the ups and downs. Instead let time work for you via the 'magic' of compounding.
With that said we, ahem, turn to the latest ASX upswing.
ASX tech shares surging higher
After falling almost 4% since last Friday, the All Ordinaries Index (ASX: XAO) is back in the green today, up 0.57% in early afternoon trade.
ASX shares are broadly following the lead of US and European markets, where all the major indexes closed higher yesterday (overnight Aussie time).
In the US, tech shares again led the rally higher. The NASDAQ-100 Index (NASDAQ: NDX) – which contains the 100 largest tech-oriented shares – closed the day up 3.0%. Tesla Inc (NASDAQ: TSLA), which witnessed a savage selloff over the past week, saw its share price leap 10.9%.
We see a similar pattern unfolding again in Australia as well. The S&P/ASX All Technology Index (ASX: XTX) — which tracks 50 of Australia's leading and emerging technology shares — is currently up 2.1%, handily outpacing the All Ords.
Buy now, pay later (BNPL) darling Afterpay Ltd (ASX: APT)'s share price is up 4.6% in intraday trading. That comes after yesterday's closing bell saw the Afterpay share price down 23% from its 25 August highs.
BNPL competitor Sezzle Inc (ASX: SZL) is also regaining some lost ground. After seeing its shares fall 40% from their 28 August highs, the Sezzle share price is up 1.2% at time of writing.
This will come as good news to these companies' shareholders. But the BNPL space is facing increasing competition from traditional financial institutions. And while they may be late to the party, their deep pockets could spell trouble for shareholders in companies like Afterpay over time.
NAB enters the pay-in-instalments fray
You've probably heard about PayPal dipping its toes into the BNPL market. On 1 September, the US-based payment giant announced it would be launching its own platform, called Pay-in-4.
And earlier this year Commonwealth Bank of Australia (ASX: CBA) invested $411 million in Klarna, a Swedish-based BNPL competitor.
Now National Australia Bank Ltd. (ASX: NAB) is entering the pay-in-instalments fray.
Yesterday NAB launched a no-interest Visa card called StraightUp. Although it differs from BNPL platforms like Afterpay in several ways (customers have a longer time to pay off their balance and rather than paying late fees they're charged a monthly fee dependent on the size of their credit limit), StraightUp is clearly targeting the same consumers that have flocked to platforms like Afterpay.
Rachel Slade is NAB's group executive for personal banking. Addressing the launch of the new card she said (as quoted by the Australian Financial Review):
This fits in a space between debit and credit. A lot of young customers don't have credit cards because they don't like the unpredictability of them. This addresses the things that make them cautious. Customers want certainty and predictability of repayment. It's got no surprises.
Sally Tindall is the director of research at RateCity. She added:
This card will suit some people and not others. Before signing up, users should factor in the monthly fee and how often they think they're likely to pay it.
It is likely to appeal to someone looking for access to credit with training wheels, as they won't get into a debt spiral, someone who wants to put it in a bottom drawer for an emergency, or someone wanting to make a one-off purchase and pay off over time. But it won't be for regular use, or for those who are fastidious about paying off debt.
So does all the new competition mean the end of Afterpay?
Not at all. Though I believe some of the smaller players in the BNPL space may find themselves getting squeezed out or subject to takeover bids.
As for Afterpay, the increased competition verifies that its business model is a valuable one. And while new competitors make it less likely that Afterpay's share price will leap 770% over the next 6 months as it has over the past 6 months, Afterpay is still one BNPL player I think is here to stay.
