How fickle financial market pundits are. Just a few weeks ago many experts were saying that the worst of the economic slowdown was behind us and that company valuations were looking extremely attractive. In fact, a number of these so called experts were saying that people should even get back into financials and other distressed sectors.
Just browse Yahoo Finance, Wall Street Journal, CNBC or any other media source for articles from earlier this month and you’ll see what I mean. Anyway after last week falls, it is all doom and gloom again with some pundits saying that we are heading into another great depression with stock markets poised for a crash into bear market territory.
So where does this leave all of us non-professional investors? Listening to what we hear and read we should buy when markets are high/rising (optimism rules) and sell when they are falling/low (pessimism is the flavor of the day). This is precisely the best way to lose money – sell low, buy high!
Apart from watching our portfolio’s drop in value faster than the price of oil is rising, a sense of apprehension, confusion and gloominess is how I would characterize my outlook currently. I reviewed my investments over the weekend and still believe the companies I hold (portfolio details to be published later this week) are good for the medium to longer term. However, there are three broad options I and other every day investors have going forward:
- Panic, buy into the market depression and sell everything we have in equities. Take what cash we get out of this and put into a money market or high interest savings account. Then sit back and watch our cash grow at a slower rate than inflation. At least this way we will see some positive growth in our net worth, rather than the current red all over the stocks in our portfolio. Much less stress, but we will be working for the rest of our lives with this approach.
- Buy more equities over the coming months if you believe that stocks are bargain buys at current prices and are an eternal optimist. If all goes to plan and markets stay true to past cycles you could be a very rich person at the end of the next decade. Of course if things get worse or we are in fact in a once in a 100 years depression, then you are going to loose a lot of capital and eventually the shirt off your back.
- Proceed with Caution. Hold on to your current portfolio. Keep cash for now and look for good buying opportunities in strong, yet beaten up, companies. Don’t feel compelled to buy or sell during market rallies and there is no need to rush in or out of stocks. Time is your friend and patience is the key.
Guess which option I prefer! I am sure that the market experts via the various media sources will see-saw with their opinions as markets stay volatile. After all they are paid a lot of money to have opinions and current conditions are great for selling media, whether it be online or offline.
From an investing perspective , I say keep alert but don’t panic. If you still believe in your investments and the underlying companies futures then ride out the current volatility. If you are losing sleep at night and getting into real financial distress with your investments then considering taking some or all your investments of the table. Some cash in hand may be better than none at all.