Is ASX 200 share market volatility always a buying opportunity?

Is ASX 200 share market volatility always translate into a share buying opportunity? The answer is not as simple as you’d think
The post Is ASX 200 share market volatility always a buying opportunity? appeared first on The Motley Fool Australia. –

Yellow road sign with 'Volatility ahead' written on it

Over the past few weeks, ASX investors have become acquainted, or I should say reacquainted, with volatility. Yes, the S&P/ASX 200 Index (ASX XJO) did reach a record high on Monday last week. But it was a choppy road to get there. And just after Monday’s record high, ASX 200 shares had gone backwards by close to 3% by Thursday.

As the new week starts today, the ASX 200 looks to be on the rise again and approaching its new high watermark once more. But it looks as though volatility is here to stay too, at least in the short term. As we discussed at length, it was renewed fears over US inflation that stirred the pot with the volatility we saw over last week. And the worst hit ASX shares were those in the ASX tech sector. Take Afterpay Ltd (ASX: APT). It managed to lose more than 12% of its value since Monday last week, not helped by the ~1% loss today. Other ASX tech shares that have taken similar beatings over the past week include Xero Limited (ASX: XRO), Zip Co Ltd (ASX: Z1P) and Appen Ltd (ASX: APX).

It’s been a bit of a rollercoaster ride, owning any of these companies over the past month (or even week) alone. Those investors who love to follow the ‘value investing‘ playbook might be telling you to ‘buy the dip’ or something similar today. You know, ‘buy low, sell high’ and all. But is volatility always a buying opportunity?

Volatility and ‘buying the dip’

Well, that’s not the easiest question to answer. There are a few questions you might want to ask yourself before you rush into these shares or any other shares that are looking relatively cheap to what they were a few months, or even weeks ago.

Firstly, asking ‘why is this volatility happening?’ is probably a top idea. Shares sell off for all sorts of reasons. Investors might have lost interest in the company. The market might not like a company’s management team’s new plan for its business. A company might be competing in a dying industry. Or, in the case of ASX tech shares recently, the prospects of interest rates and inflation might be spooking investors in one particular sector. The list goes on. Obviously, not all of these reasons to sell a share mean it’s a good idea. Some of these issues might be temporary, meaning that it might be a better idea to buy more shares, rather than sell out. If it turns out that the fears over inflation and interest rates are unfounded, this may apply to the ASX tech space right now.

But on the other hand, you want to get out as fast as possible if there is truly a long-term, structural problem with a business that will result in it shrinking, rather than growing over time.

Volatility can be your friend. Sometimes shares just drop because the market is temperamental and emotional at times. But not always. Sometimes things drop for a good reason. Knowing the difference can make a big difference to your ASX share portfolio over time.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia’s Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Click Here For Your Free Stock Report

Returns As of 15th February 2021

More reading

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO, Appen Ltd, Xero, and ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Is ASX 200 share market volatility always a buying opportunity? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!