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Another ASX Market Correction and Remaining Calm

September 3rd, 2015 · Greg Atkinson · 13 Comments

Generally when the stock market enters a phase of volatile trading days I tend to sit back and try to remain calm. Market corrections are normal and come along more frequently than we often seem the recall, but when the volatility passes a new market phase will begin. However this new market phase may not be what we are expecting or hoping for, so as investors we need to be ready to adjust to this new reality.

The current turmoil sweeping the markets is not a surprise to me and back in March I wrote that I thought the ASX 200/All Ords were over-bought and that a correction was near.  See: Shorting the Australian Stock Market, Oil & Soft Commodities

That correction has now arrived and the S&P/ASX 200 Index and ASX All Ordinaries Index have fallen to just above 5000. (a level the market reached in 2006!) Considering they were both around 6000 earlier this year that’s quite a fall!

This current sell-off across a broad range of ASX stocks has been a little more severe than I anticipated, but just as trying to pick the precise top of the market is almost impossible, so it picking the bottom of a correction. Where a market correction will end nobody really knows…we just make the best guesses we can.

During a market correction it is important to filter out the media hype and focus on facts, so let’s look at a couple of long term charts of the ASX 200 and skip the short term noise for the time being.

First let’s look at the 10 year chart of the ASX 200 and not surprisingly there have been quite a few corrections, pullbacks and slumps during this time.

S&P/ASX 200 Index (XJO) 10 Year Chart

ASX 200 10 Year Chart (Sept 2015)

On the ASX 200 chart above I have highlighted some of the market pullbacks, corrections or falls over the last 10 years. Clearly the fall from the Australian stock market high in late 2007 until the market bottomed out in early 2009 is the dominant feature.

However there have been plenty of other corrections big and small over the last decade and with that in mind, the current pull-back doesn’t seem to me (at the moment) to be that usual.

So if we sit back and look calmly at this chart we cannot conclude anything about it apart from the current correction has sent the ASX 200 back down towards 5000. It may signal the start of a more severe correction, or more likely in my view, it’s yet just another correction.

One thing that has been consistent with every one of these corrections though has been the media reporting with the usual “Is it time to dump stocks?” or “Will the market meltdown continue?” type articles doing the rounds. It’s worth noting however that many of the reporters & commentators who write these stories were earlier in the year almost certain the ASX 200 was headed beyond 6000 because of the “strong” fundamentals of the Chinese economy.

As readers of my articles will know I have been bearish about the Chinese economy for some years and I don’t expect we have seen the end to economic slow down there.

Next let’s have a quick look at the ASX 200 since it was started back in 2000.

S&P/ASX 200 Index Chart – 2015 to Present

ASX 200 Index Chart 2000 - 2015

I am simply including this chart to provide some long term perspective to the the short term view which is swirling around at the moment. Yes the current correction is unnerving, but in the overall scheme of things it’s just another bump on the road or as Peter Lynch once stated:

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”

I appreciate that short-term stock traders and those with exposure to margin calls may not share my “remain calm” approach to market corrections and I welcome their feedback. But from my perspective there is little to be gained from selling into a correction – the time to take some profits (or take short positions) was back when the market was near 6000.

So for now my approach is to pick up if possible, long positions in stocks or ETF’s that I have been watching for a while and I don’t expect to see a capital gain regarding these positions for 2-3 years.

In the meantime, a balanced stocks portfolio should provide a reasonable return via dividends and possibly as a bonus, a few companies may even surprise to the upside in the years ahead.

This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp


13 responses so far ↓

  • 1 Stillgotshoeson // Sep 21, 2015 at 4:21 pm

    Been a hectic couple of months for me. Market has had another hammering today.

    Still have a belief the all ords will have a new record low before this is all done. 2016/2017 more likely imho than this year though.

    Fed kept rates on hold. I’m still expecting stimulus measures for the US economy. In the interim, I’ll keep going to work and getting paid and adding to the portfolio as I go.

    Aussie economy is toast it seems…
    http://www.theage.com.au/business/the-economy/australia-is-toast-foreign-investors-tell-nab-20150921-gjrfth.html

  • 2 Greg Atkinson // Sep 24, 2015 at 8:34 am

    The ASX 200/All Ords have hit a rough patch as have many other major stock markets such as the DJIA, Nikkei, FTSE etc. There is a lot for investors to digest and things like VW scandal just make things even harder to read.

    But is the big picture view really that surprising? The slowdown in China was very predictable, the mixed outlook in Europe is well known and the true state of the US economy can be judged by the reluctance of the US Fed to raise rates.

    I don’t think the Australian economy is “toast” as such but certainly the days of easy growth are over for now.

  • 3 Biker // Sep 24, 2015 at 10:02 am

    Are we toast? Are US citizens being roasted-on-a-spit?

    http://www.watoday.com.au/business/markets/bill-gross-says-us-savers-being-cooked-alive-by-zero-per-cent-interest-rates-20150923-gjtni6.html

    Is Germany’s goose cooked due to the VW crisis?

    These culinary contexts have me salivating!

  • 4 Ned S // Sep 29, 2015 at 3:22 pm

    4% down on the day. Ouch that was a biggie. Someone dislikes us. A lot.

  • 5 Greg Atkinson // Sep 29, 2015 at 9:05 pm

    Yes Ned it was a nasty fall today and I should have held onto that ASX 200 short position I had a bit longer! Oh well. Anyway this is the correction that has been brewing for quite a while but I am surprised by the fall today. The correction does seem a little overdone to me but only time will tell if that’s the case.

    Personally I think the market will eventually revert to the mean and we will see the ASX move upwards before then year is through.

  • 6 lachlan // Sep 30, 2015 at 9:42 am

    We Aussies may be eating 4680pizza in the near future…according to my latest bearish epiphany …bring out the pineapples ha ha.
    Oh Greg the world is upside down….you are being a bull and im a bear…all good fun

  • 7 Greg Atkinson // Sep 30, 2015 at 9:49 am

    Lachlan I’m not bullish, just not ultra bearish 🙂 As I wrote some time ago I expected the ASX to take a hit once the reality of the slowdown in Chinese economic growth became obvious. (although to many of us it’s been obvious for quite a while)

    However I don’t think the sky is falling and there is a lot more growth in Asia outside China that is yet to be tapped into. (although Australian companies still seem focused on China)

  • 8 Biker // Sep 30, 2015 at 12:42 pm

    Lachlan: “…according to my latest bearish epiphany …bring out the pineapples ha ha.”

    Bears? Fortunately the bears seem more interested in dying pink salmon in VI rivers, than me or my Coho. The recent exception was a very large she-bear, with two cubs. She was distracted by fruit on a nearby apple tree. Rose to full height to take a look at me… then resumed munching.

    They say Canada is in technical recession. You’d never know it. Everyone is driving a later model car than our CRV… and no-one seems to be suffering unduly. Unemployment is lower in this BC town than in WA.

    The more things change, etc.

  • 9 lachlan // Sep 30, 2015 at 7:03 pm

    Yes the sky is not falling today or at least this pullback is not so out of place.The dow was over-ripe for a pullback.

  • 10 lachlan // Oct 2, 2015 at 4:06 am

    Canada wilderness and bears are on my to do list BP…although for now I am chained to a business with a life of it’s own (exciting but it’s a worry somehow at the same time). A brother of mine (i have two somewhat older) is gearing up to visit Antarctica in 18 months time. He was a vet before a tragedy of sorts struck him a few years back. Now he seems doomed to travel to awesome places all the time….poor bugger eh?
    I gotta run, my business has a life of it’s own, exciting but scary all at once. We have no shortage of money in our micro industry all though we fight like cats and dogs over trade. All good fun for now, when its not anymore I’ll move on.

  • 11 Biker // Oct 2, 2015 at 1:50 pm

    Just over a week before we fly home, Lachlan. Three different countries during the last four months.

    Hang in there. The kids grow up, investments pay off… and you’ll enjoy the fruits of retirement, including travel. My fly fishing has finally developed, although I must admit I’ve been enjoying the best the world can offer in BC.

    Your business is ideally placed to assist rehabilitation of mine sites throughout Australia and the way things are going, seed banks will become increasingly valuable as we place more store on restoration!

  • 12 lachlan // Oct 4, 2015 at 6:44 am

    Looking for another down leg soon Greg, will watch this week no doubt.

    BP I walked into a fly fishing shop sometime in my early twenties. It was my first hands on look at the equipment etc. Heard the entire story from a motivated shop owner/advocate who’s fly fishing evangelism almost had me parting with many hundreds of dollars; a very involved and fascinating art-form it is! I kept my money that day though I can easily understand his zeal. I will have to wait for my turn on the rod.

  • 13 Stillgotshoeson // Oct 4, 2015 at 6:55 pm

    The DOW dropped initially on the jobs numbers in the US, then turned around and finished in the green. We may see a green day on the all ords tomorrow.

    I’m not panicking over the stock market. Continue going to work and getting paid.

    Currently doing due dilligence on another coffee shop. Further out from the city than the other one. It is barely making money. Owner wants $240k. Earnings $12k per week. After Wages, Taxes, Stock and rent there is pretty much no profit. Looks ripe for improvement.

    My super is up 33% for the year. I can live with that.

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