Be cool and do not let this volatility spoil the long term investment plan
If you listen to the financial noise in the main stream media you have heard and read lots of opinions about the state of the US, EU, and Global economy.
The evidence suggests GDP growth is slowing, despite government stimulus, and many governments are running out of options given their high debt to GDP levels and record low interest rate policies.
But, corporate profits and liquidity are very high, and many companies are beat analyst expectations. So while governments may be struggling, many companies are doing quite well .
Until very recently things were moving along steadily in the stock market. Capital has a way of seeking out growth.
It does not take a savvy player/investor long to grasp that a 10 yr Treasury yielding about the same as the S&P 500, around 2.2% is not a great deal.
The huge amount of Capital also has to go somewhere, and despite volatility, stocks are the best option IMO.
ETFs and high frequency trading makes it difficult for retail, and for most professional)investors to accurately predict the short-term movements of the market.
This difficulty is especially true for small cap investors.
For most investors it is best not to get caught up in the market’s daily fluctuations since fundamentals are clearly not driving price action. This is not easy to do, but a must.
But stock corrections are a process, Violent corrections, like the one we have seen over the past month or so, now happen fast, too fast for most investors to capture quick gainers.
To try to time the Up/Down/Up action in a Bull Market correction often leads to too much buying of companies that will still go down, and too much selling of positions that are likely to go up.
That said it is important that players/investors set a simple course and strategy during violent stock market action and do not try to get too “smart.”
A good and solid program is to buy attractive growth companies at reasonable valuations with significant exposure to Global growth trends.
Book gains on some winners along the way, cut some losers, and work to outperform the overall market.
This strategy in this the recent market action is a time to average into more shares of the good stocks, there are many of them, and you can do that if the money is not scared money or money needed to live on. For most people it is better to be an investor, and not a trader.
And when more capital is wanted or needed for a Special Situation positions that hold less conviction can be sold to buy into a better opportunity. Remember it is your money and your responsibility and the name of the game is to make money.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.