Imagine your favourite high quality product. It might be coffee beans, avocados, books by a famous author or a gadget. Now, imagine this reliable consumer product drops it’s price by 10%, 20% or more. What do you do?
Option one: wait until it’s price goes back to normal. After all, that’s what I paid for it
Option two: buy more and take advantage of the discount
Here are some things you may consider when making this choice:
- Has the product changed at all? Can I still expect the same utility and quality from this product I love?
- Has the producer of this product changed at all?
- Have the conditions under which this product is created changed?
- Will this product continue to add value to my life?
If the answer is broadly “no” to the first three questions and “yes” to the last question, then it would be wise to consider taking advantage of that discount.
The same theory can apply to investing. When the market is down it can mean that attractive stocks that were once a bit too pricey are now good value. If you are investing for the long term, then short term price fluctuations can be an opportune time to invest more in the stocks that we think will continue adding value in the long term. Of course, active investment managers also consider what might else affect the valuation and future of this stock, including the competition, company management, regulation, off shore forces, technological innovation and commodity prices. That’s a few more factors to consider than what it takes to buy a good cheap avocado, but that’s why we have a team of investment professionals to do it for us.
After all, a good guac comes from more than just one avocado.
Jodi is a millennial investor and an investment relations consultant at eInvest. This article is the opinion of the author and is not financial advice. Speak to your financial advisor or broker for more information. I’m sure they’ll be happy to help you. Don’t forget to always read the Product Disclosure Statement (PDS) for the active ETF you are invested in.