Just today, stock markets around the world were further rocked by the news that Russian forces had attacked and gained control of the Zaporizhzhia nuclear power plant. This is Europe’s largest nuclear power plant. The terrible news has followed a week of distressing reports from Ukraine and steadily declining share prices. This time last week, however, many companies had rebounded, like Ferrexpo, the iron ore miner operating in Ukraine.
That’s why I’m looking at recent market volatility as a stock market correction, not a stock market crash. In the past, I’ve tried to learn how best to respond to these types of situations. Here are two of the best lessons I’ve learned. Let’s take a closer look.
Why I’m not panicking during this stock market correction
None of my holdings have been immune from the recent market volatility. However, two stand out as having suffered the most. The first is Polymetal International, a gold mining firm based in Russia. For obvious reasons, like the threat of sanctions, the share price has fallen off a cliff. In the past week, it is down 71%. In the past year, it is down 86%. But as I write, it is trading around 220p, up 25% on the day.
Similarly Ashmore, an emerging markets asset manager, is down 10% in the past week and 48% for the year. While it is currently trading around 224p, it has suffered as a result of investors retreating to ‘safer’ havens. Of course, it is possible that conditions could deteriorate and drag share prices down further.
It’s at times like these when I think back to the reasons I bought these companies in the first place. Polymetal’s earnings-per-share (EPS) has grown from ¢88 to ¢191 over the 2017 to 2021 calendar years, a compound annual EPS growth rate of 16.7%. In addition, Ashmore’s revenue has steadily increased from £257m to £292m between 2017 and 2021, for the year ended 30 June. Its compound annual EPS growth rate is 7.7%. By reminding myself of the rationale for my investment decisions, I’m better psychologically prepared to weather the temporary storm.
Why I’m buying, not selling
I’ve also learned that it’s useful to have part of my portfolio in cash. This way, any downturn in the market provides a buying opportunity. Because fear and panic are driving this stock market correction, shares tend to become oversold. The same may apply in rising markets, when greed takes over and shares become overbought. Buying while most others are selling may be considered a contrarian approach, because this is going against the prevailing investor sentiment.
I’m looking to top up two of my existing holdings, Rolls-Royce and Cineworld. In the past week, they have fallen 16.5% and 6.8%, respectively. For the past year, they are down 10% and 66%. Yet, I consider these to be quality companies. Cineworld is enjoying improving results as more people return to the cinema after the pandemic. For December 2021, group box office revenue was 88% of that in the same period of 2019. Rolls-Royce is building a sustainable business, exploring electric aircraft and sustainable aviation fuel.
I’m not letting fear take hold of my investing. While it is sometimes disconcerting to see heavy losses on the screen, I stick to my long-term principles. I will be buying more shares in Rolls-Royce and Cineworld today. I won’t be selling a single thing.