Shares slumps are inevitable – it’s the way you react to them that counts, write David and Libby Koch.

The rout on sharemarkets globally is continuing and the volatility is getting a little scary. Most markets are now in an official correction (10 per cent down from their peak) and China is in a bear market (down more than 20 per cent).

Not that any of this was unexpected. In the first week of April, when markets were booming, we wrote here: “After fours years of pain, those same sharemarkets have recovered strongly in the last 12 months and are back touching those same records set in 2007. Bonds are again ringing the bell at the top of the market with a very strong message that shares are getting way ahead of reality and that another sharp drop is on the cards.”

Even so, if you’re invested in shares, how do you cope with volatile markets like we have at the moment?



Stay calm. Get sound advice from a stockbroker, financial planner or wise, investment-savvy friend or relative.

Never forget that markets are simply a collection of people making investment decisions. Those people have the same emotions as everyone else. They make rash decisions, are gripped by fear of the unknown and have a herd mentality because they don’t want to stand out if they’re wrong.

That’s why sometimes markets can appear to be overly skittish when the reality doesn’t seem to justify the rash decisions. Understanding the emotion of the markets is just as important as getting a handle on the fundamentals.


Most superannuation funds offer investors a range of investment options from high-risk international funds to the very conservative balanced and capital stable options. Now is a good time to check which you’re invested in and whether they reflect your risk profile.

If they look a bit risky, and overexposed to shares in relation to your individual circumstances, chat with the fund about rebalancing.

While super fund returns will be hit by the sharemarket downturn, remember it won’t be as bad because most fund managers have a diverse portfolio across property and fixed interest as well.

Those who are salary sacrificing into superannuation should continue as normal. Remember that if you’re contributing the same amount each month, today’s contribution will buy more than last month’s. It’s the same effect as dollar-cost-averaging.


You are watching share prices drop and your gains dwindle away. Is it time to bite the bullet, call a broker and sell out?

Don’t be too hasty. Investors should be considering their shareholdings in the light of longer-term factors. Short-term falls in stock prices are part and parcel of sharemarket investing.

Have a look at whether stocks across the board have been affected to the same extent. Often investors are spooked into selling at the very bottom of the market.

Look at history. Some of the best times to buy shares in the last 20 years have been the days immediately after a crash when everyone was still selling.


Two levels of influence affect the movement of share prices.

The first is the economic climate. Share prices are affected by the level of interest rates, currency fluctuations, health of the economy and the general level of confidence.

Then there are individual factors affecting each stock. Things like its cash flow, strength of management, history of the company, competition and level of debt.

The most important question for investors to ask themselves is whether this fall changes the overall view of the company.


There are three choices for share investors: buy, sell or do nothing. When times are volatile, you’re invested in quality companies and you’ve received good advice, the best decisions could be to just stay on the sidelines and watch.

Observe the sharemarket until a longer-term trend becomes apparent.


* The US Federal Reserve reckons the US economy is starting to improve and says it will consider winding back its economic stimulus and increasing interest rates.

* China is slowing its credit boom to cool down the surging property market.

* Social unrest in Europe continues as economies stay in recession.


HERE are our golden rules of share investing.

1. Do your homework before buying, and don’t buy or sell on rumour, hunch or impulse.

2. Balance the risk and reward factors by looking closely at past performance and future prospects, and remember the sleep test. If the worry of your shares falling keeps you awake at night, don’t buy them.

3. Keep checking after you’ve bought. Investment conditions, company management and objectives can change.

4. Be patient. Don’t expect to get wealthy overnight.

5. Don’t forget that shares can bring income and capital appreciation.

6. Be alert to trends. Try to put political, economic and scientific events through an investment filter and examine their implications for companies.

7. Be prepared for unexpected events. Review the situation promptly before taking any action.

8. Check the environment. Be reassured the economic and market prospects look fair for the company, for the year ahead. Don’t buy a share just because the price looks cheap.