Ann: Q2 FY2022 Quarter Update Conference Call Details, page-43

FYI - from the M Fool

If you’ve been following ASX shares recently, you’ll know that fortunes have dipped the past few weeks.

Despite a mini-rally the past few days, the S&P/ASX 200 Index (ASX: XJO) has nevertheless lost 7% since the start of the year.

Does this mean it’s now time to “buy the dip”?

While some experts are advising investors to wait for further volatility this year, Montgomery Investment Management chief investment officer Roger Montgomery disagrees.

“A 10% to 15% correction is ever-present and when indices fall by that much, you can be sure some individual sectors and stocks will fall much more,” he said on a blog post.

“Those falls present investors with the opportunity to pay lower prices for excellent businesses that may have been recently out-of-reach.”

Montgomery pointed out that many people seek out bargains with retailers, so why shouldn’t it be the same for stocks?

“I have always fancied the Australian-made Rhino storage and toolboxes available at Bunnings but I could never stomach $129 for a plastic moulded box,” he said.

“In January, Bunnings held a sale for those same boxes and they were just $30 each. I bought all 3 on the shelf. Investors should buy stocks the same way, holding out for attractive prices.”

Businesses are less volatile than shares

One truism that Montgomery reminded investors of is that shareholders actually own businesses. And the share price is usually far more volatile than the actual performance of these businesses.

“That volatility provides opportunity,” he said.

“Share prices can disengage from the underlying fundamentals, economics and potential of a business. It is during these periods, investors should be sharpening their pencils because, eventually, the share price will reflect the value the business is creating through the process of generating and retaining profits.”

Montgomery acknowledged that rising interest rates, which drove the January sell-off, does diminish the value of future earnings.

But he remains “unconvinced” that high rates of inflation would stick around.

“Companies have invested record amounts in automation and union representation around the world is lower than at any time in modern history,” said Montgomery.

“The upshot is that wages will eventually be under pressure again and given the very high levels of household debt, a few short and sharp rate hikes may be all that is necessary to put the inflation genie back in its bottle.”

Rising rates never stopped shares from heading up

Besides, historically rising rates have not stopped shares from trending upwards.

He took the S&P 500 Index (SP: .INX) between 2015 and 2018 as an example.

“Short term rates were lifted 9 times and yet the market rallied,” said Montgomery.

“Provided — and this is the key — you own companies that are high quality, growing and increasing their intrinsic value, then even rising rates won’t be enough to keep the share price from eventually reflecting its worth.”

He also reminded investors that the equities that have crashed the past few weeks are not on the balance sheets of “systemically important financial institutions”.

“Any equity market rout is unlikely to lead to a financial crisis. A good old market correction – contained to equity markets – should therefore be seen as an opportunity to add or begin investing,” said Montgomery.

“Above all, remember one thing: the lower the price you pay, the higher your return.”