Aussies are rejecting the wisdom of buy in doom, sell in boom


This year has so far been a good example of investors doing the opposite of what they should when it comes to investing, as they are certainly not heeding Warren Buffett's mantra of buy in doom and sell in boom.

According to the recently released BetaShares Australian ETF Review for February, outflows from Australian ETFs caused the industry to fall for a second consecutive month. They also reported for the first time in the industry's history that the international equities category resulted in a net outflow and that new money inflows were at their lowest net figure in five years.

The report indicated that the results were partly due to falling global share markets, which I believe has caused concern for consumers about global economics and the much talked about potential for a stock market crash. Many investors also reduced their holdings in direct equities or exited the market based on similar fears.

asx australian sharemarket boom doom warren buffett

Interestingly, the All Ordinaries Index closed just 6.57% lower than it opened in January and it closed just under 1% higher in February than it opened. While in March the market rose strongly back to where it started the year.

Given that the market didn't unfold based on investor expectations, this created what is known as the herd mentality where the masses have acted out of fear. However, Buffett's quote about buying in doom is not about following the herd. Those who understand this would have been excited at the market volatility that unfolded in the first quarter of this year and would be waiting patiently to buy good stocks at better prices.

When the market is volatile, investors would be wise not to pay attention to what the masses are saying and instead do the opposite. If the Uber driver is giving out stock tips, then maybe it's time to be wary about an impending stock market peak. But if they are all fearful of a stock market crash, it's time to get ready to take advantage of some great buying opportunities.

The best and worst performing sectors this week

The best performing sectors include Utilities up more than 3% followed by Energy and Consumer Staples, which are both up more than 1%. The worst performing sectors include Consumer Discretionary, Information Technology and Materials, which are all down more than 2%.

The best performers in the S&P/ASX top 100 stocks include Magellan Financial Group up more than 12% followed by Mineral Resources up more than 9% and AGL up more than 8%. The worst performing stocks include Lynas Rare Earths down more than 11% followed by Aristocrat Leisure down more than 7% and South 32 down more than 6%.

What's next for the Australian stock market

The All Ordinaries Index started the week on a positive note, as it trended up before showing some weakness towards the end of the week. In my last report, I mentioned that you shouldn't be surprised if we experience a few down days this week although I expect this weakness to be short-lived.

That said, we need to be prepared for it to last into next week, which could see the All Ordinaries Index fall to around 7600 points.

Once the Australian stock market finds support, I am confident it will rise up into April and well into May to around 8200 points and beyond before we see the next peak. For now, I recommend investors be patient and look for opportunities in the top 50 stocks that are likely to present in the next few weeks.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.
Patrick Hockey
April 9, 2022 8.16am

Just as well someone is selling at discounted prices but the hit to the bond market is complicating cashflows. One of the puzzles in the market is the poor performance of Lynas given their prime positioning for the shift to an electrified economy.