Learn the secret of how to make money while those around you are fearful, in under 2 minutes. Explanation in the text below, as well as advice on how to react to recent stock market moves.
How to keep your head when those around you are losing theirs.
- Firstly get better informed by asking 3 simple questions: What’s really going on? Why is it happening? What could happen next?
- Then work out how it could affect you with another 3 simple questions.
The recent turmoil in the financial markets is a great example. Investors seemed to be losing their heads.
- What’s really going on? Stock markets were tanking (see below for more info)
- Why is this happening? Investors worried the economy may not grow as much as expected, so companies may not be as profitable and their shares not as valuable.
- What could happen next? Central Banks under pressure to enact policies to support growth to get things back on track.
How does this affect you:
- Will this matter over the longer term? If you’re investing for retirement or savings you won’t touch for a while then you can cope with something that may be a bump in the road.
- Is there a way you could benefit? When prices fall, you can buy at a cheaper level.
- What is it you wanted to achieve in the first place? If it’s to sleep well at night then investing in companies you have confidence will appreciate in value over the longer term will help you keep your head when others are losing theirs.
INVESTOR NOTE:
Reaction to the sharp stock market sell-off:
- WHAT? The S&P briefly erased its gain for the year, US Treasury dipped below 2% for the 1st time since June of last year. The Greek market fall almost 6% yesterday and periphery bond yields are rising.
- WHY? Growth concerns (downgraded forecasts for global growth and data even out of the US has come in weaker than expected), with rising geopolitical tension and the Ebola outbreak compounding these fears. Investor complacency appears to be reversing – after seeming indifference to economic setbacks as stocks ground higher, volatility appears to be returning.
- WHAT NEXT? Pressure on Central Banks to remain accommodative – hopes will be raised for ‘conventional’ quantitative easing by the Eureopan Central Bank and some form of response by the Federal Reserve. Expectations for action could support markets, while any further disappointment would not be well received – noting that Central Bankers have tended to bark louder than they bite.
- HOW TO REACT? Maintain a long term time horizon. Focus on quality and investments strong enough to weather the storm. Market overreaction can be exploited (by buying attractive assets at cheaper prices) rather than feared… if you ‘buckle up’ in something you have confidence will appreciate in value over the longer term. Investing in companies that can maintain dividends and grow earnings regardless can help you weather the storm.
Gemma Godfrey is Head of Investment Strategy at Brooks Macdonald, a CNBC broadcaster, Board Director and Quantum Physicist by background. Voted the most popular businesswoman on Twitter by AdvisorOne and one of the savviest by the Wall Street Journal, follow Gemma @GCGodfrey and read her views at www.TheInvestmentInsight.com.