Following some brutal days, weeks and months some were saying the worse must be over and things will return to normal. Every time the market prices fall, pundits begin taking shots at calling the bottom. Down markets are fertile ground for rumors, wishes and ill-founded hopes that the good times are just around the corner. One of the most troubling environments for markets to handle is uncertainty. A normal strategy in a down market is to look for good companies trading at a discount. However, when you are uncertain there will be any future earnings, picking a winning stock becomes much more risky. Investors need to know that markets will react in reasonably predictable ways. Until that confidence is restored, many investors will sit on cash or cash out of stocks when they can.
When investors can’t reliably predict a company’s future earnings because the market is in chaos, the smart thing to do is nothing. While waiting for the market rebound, look for bargains if you can afford the risk and with the understanding that no matter how far a stock has dropped, it could drop more. There is no doubt that much value has been lost in the market and many investors are sitting on the sidelines with large hordes of cash. If there is a reliable sign that the market has turned around or is beginning a turnaround, much of that money will likely rush back in to the stock market. When buyers flood the market, prices go up. However, it is my belief that investors coming back into the market will be more concerned than ever before about safety. You may have to accept a lower potential return or be willing to take more risk to achieve your goal.
Long-term investors can look for stocks that may be under-priced (when considering long-term potential) for good returns when the market picks up. Stock market is always looking to the future and not necessarily the present. There are still opportunities for the long-term investor in a slow-growth; you just may have to look harder.
Most stock investors take a long-term view and, if you can afford to hold on to that timeframe, I believe the market will right itself (with some help from the government).
Until confidence returns, investing the stock market will remain very uncertain.
Despite the terrible circumstances that grip the stock market, I believe we will pull out of this mess. The only question in my mind is when it will happen.
Doing something just because everyone else thinks it’s a good idea, won’t give you much drive or determination or commitment. An important key to success knows precisely what success means to you. Learning is an evolutionary process. Each time you watch a session and execute a play, you'll be learning something new.
My goal is to help you make money and trade smarter. But don't take my word for it.
Asoka Samarakone