The share market is full of stupidity: here’s how you take advantage

A woman wearing a black and white striped t-shirt looks to the sky with her hand to her chin contemplating buying ASX shares today as the market reboundsA woman wearing a black and white striped t-shirt looks to the sky with her hand to her chin contemplating buying ASX shares today as the market rebounds

Las Vegas might invoke the classic image of hedonism but the sobering reality is that Australia is the real home of gambling.

According to the Washington Post, Australia has less than 0.5% of the world’s population but somehow hosts 20% of its poker machines.

Marcus Today founder Marcus Padley says Australia is a nation of punters “whose courage and risk taking is legendary”.

“After all, Australia is a nation built by people who took a risk, simply by coming to its shores,” Padley wrote on his blog.

“The legacy is that half of adult Australians gamble on a regular basis.”

So what has this to do with the stock market?

Short-term traders are taking over, just like the pokies

The point is that much of the finance world is also built around encouraging clients to take risks.

“In the casino, they distract you with flash and feathers and disable you with drink. Meanwhile, somebody has their hand in your back pocket,” said Padley.

“In the share market, they dazzle you with colourful software, trading platforms, average returns, IPOs, dividend yields, franking, charts and the media iced by jargon, urgency and ever-thinning sophistication, whilst someone has their hand in your SMSF.”

Thus, we have many Australians punting on ASX shares, trading them on a short-term basis, all to make a quick buck.

Unfortunately, most of them will lose, especially in a year like 2022.

So with such traders driving stock prices up and down on momentum and fear, what is a sensible investor meant to do?

This is how to cash in as a long-term investor

The only thing to do in this crazy world is to go long, according to Padley.  

“While stock market price integrity has become more fluid, volatile and vacuous, the underlying fundamental value of the companies on whose share prices the gamblers now rely, are still there. In the long term,” he said.

“And no manner of hype and herd will take that away.”

Rather than despise the short-term gamblers, take advantage of the volatility they create. Buy ASX shares when fundamentally sound companies are going for cheap.

“For traditional investors, this is your take home. Do not dismiss the gamblers, welcome them. They are a gift, delivered to you daily.”

The reality, according to Padley, is that short-term trading based on momentum “creates volatility and price extremes”. 

“For the investor, that creates regular, exploitable opportunity. That’s great,” he said.

“You should welcome the stupid into the market. The more uninformed people in the market, the more people there are to exploit.”

The post The share market is full of stupidity: here’s how you take advantage appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.

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