If you've been out of internet reach for the last 6 days, here's what happened on the ASX: nothing.
Well, not much, anyway. Since the market closed last Thursday, the ASX 200 is down by 25 points, or 0.5 per cent. That's not great, of course - most investors would rather be ahead than behind.
That is, unless you're a long term investor who'll be adding money to the market in the coming months and years - then you should be cheering on the falls. But that's a different topic for a different day.
So, 25 points. 0.5 per cent. Nothing to write home about.
But wasn't there a crash?
If you haven't been out of the loop, though, it hasn't felt like a 0.5 per cent decline. Because while that's been the overall outcome, the ride has been a helluva rocky one. When the market closed last Thursday at 5288.6 points, no-one had an inkling. But then came Friday.
Friday
China's stock market had been volatile (and still heading down). The Chinese PMI numbers (a proxy for economic activity) were soft. We knew that. But investors were jittery. The market fell 1.4 per cent. Ouch.
Monday
Friday night, our time, wasn't pretty. Wall Street had a good old fashioned panic. The S&P 500 was off by 3.2 per cent. The bears were in charge and - to mix my metaphors - the herd was running… fast. Where? Why? No-one cared - just get out of the way! China was blamed. A slowing global outlook. It didn't matter - whatever 'reasons' were being cited, the fall was on. Not to be outdone, the ASX fell another 4.1 per cent on Monday. In its best Crocodile Dundee voice, the ASX was saying 'That's not a panic. This is a panic'! Down 4.1per cent on Monday - or almost 5.5 per cent since last Thursday.
Tuesday
Panic? What panic? The ASX rose 2.7per cent - putting back two-thirds of Monday's loss, and almost half of the loss since Thursday. That was despite Wall Street having lost 3.9per cent the night before. What? Aren't we supposed to follow the US? Isn't there a panic on? Up 2.7 per cent on Tuesday, for a decline of 2.9 per cent since Thursday.
Wednesday
Tuesday night in the US was the fourth day in a row that the daily loss exceeded 1 per cent -1.4per cent this time - almost a relief after the last few days. It was still down a full 8.3 per cent in just a few short days, though.
Armageddon, surely? When we woke up to that bad news, we… well, we seemed to ignore it. Our market gained 0.7 per cent. Maybe we'd been too hasty? Up 0.7 per cent on Wednesday, and now only 2.2 per cent down since Thursday.
Thursday
Finally, the US market rediscovered its mojo, overnight. 'Crisis' over, apparently, and it put on 3.9 per cent for the day. The bulls were back in charge. I don't know whether our market cared or not by now, but the bulls remained in charge here, too. Up 1.2 per cent on Thursday and down only 1per cent in a week.
Friday
Oh yes, the bulls were back running down Wall Street. Maybe the US markets were watching the ASX. Maybe the Hayne Plane's flights for the 49ers were spurring them on. Whatever the motivation, the US S&P 500 jumped another 2.4per cent. And the ASX? We added another 0.5 per cent on Friday. That took us to within a whisker of last Thursday's close, despite 4 of those days being moves of more than 1 per cent.
Much ado about what, exactly?
So what are we to make of the last 6 market days?
That the market is right? Or that the market is broken? That it's a place for gamblers and speculators?
The ASX is often thought of by many as a place where only gamblers play and the smart money always wins. If anything, the last six days should have demonstrated exactly the opposite.
Yes, if you were unfortunate enough to be trying to day-trade the markets over the last 6 days, you were, indeed, gambling. And you had to be mighty lucky to pick all of those movements. Indeed, if you were expecting the Aussie market to slavishly follow the US, you cost yourself a lot of money early in the week, and a small amount later in the week.
And the 'smart money'? If the big end of town was so 'smart', it would have been buying with its ears pinned back on the down days, ready for the rally. But of course, if that was happening at any significant scale, the market wouldn't have fallen - propped up by those very same buyers instead. That's not to pick on the big end of town, by the way - just to debunk the theory that the 'smart money' always knows.
If not that, then what?
If you needed evidence that the market can be irrational, and that traders and investors can be moody, the last six days are all you should need. Conversely, those that would tell us the market is efficient have their work cut out for them!
But far from scaring you away, it should remind you that the investing world truly belongs to the 'buy to hold' crowd. If you simply did nothing, you're marginally worse off this week, but by a very small margin that could easily be erased with another good day.
More importantly, the volatility of this week will be wiped from our memories in a matter of weeks and months. Apparently, Monday's fall was the largest for quite a few years. Instructively, no-one I talked to could actually remember that day with any clarity, if at all.
As Motley Fool co-founder David Gardner likes to say 'The market falls faster than it rises, but it rises more than it falls'. In other words, panics are sharp, but the inexorable (if bumpy) rise of share markets has delivered a return of around 10per cent per annum for over a century.
Foolish takeaway
Panics come and panics go. It's ever been thus. Selling out in the face of fear might have salved the nerves, but would have significantly dented the pocket book.
Yes, one of these days a 4per cent fall will precipitate a larger market slump. Maybe it still will, this year. But if you desert the market at the first sign of trouble, you miss out on the chance to build substantial wealth -- despite those falls, not in the absence of them.
Buying quality companies and holding them for the long term has -- for good reason -- been a tried and trusted approach. And embracing such an approach would have seen you buying this week when prices fell -- not succumbing to the panic.
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Scott Phillips is a Motley Fool investment advisor. You can follow Scott on Twitter @TMFScottP . The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).
