More news of the economic problems pile up day after day, falling Oil and gasoline prices indicated contraction in consumer spending, weaker economic data, as the US Government Commerce Department said third-quarter gross domestic product declined at a 0.5 percent annual rate. Also the concerns regarding high unemployment rate and low liquidity prevails. The figures remained disappointed, many average investors staying away from the choppy markets. Current uncertain situations raise many questions in the mind of rational investors, like the very common concern "This really is a tough situation. Do you think things will work out for the best?"The answer should be easy as the proverb "Sure they will. Every cloud has a silver lining." As the saying goes, tough times are like dark clouds that pass overhead and block the sun. When we look more closely at the edges of every cloud we can see the sun shining there like a silver lining. I hope this must be the only reply but the reality is bit different.
Lately most of upward moves in stock markets based on the thinking that the particular move will stand out as a silver lining but in reality the outcome was like chasing a mirage, this include the bailouts, cut on short selling or interest rate cuts and more regulator actions like these.
Let me show you couple of positives, better than none’ you can find some silver lining if you look for it, but there is still a big cloud of the recession looming and attached with them.
First, Retail is a sector that can be watched out as market out performer, with its wider coverage and its focus on necessities, this sector consists of someone like the world's largest retailers as Wal-Mart Inc. The volume or quantity drove business model of big retailers can easily sustain for many years to come, no doubt that the margins fall further due to tight consumer spending.
Secondly, markets downturn could favor younger investors in their late 30s or early 40s, with decades to go before retirement, as these investors can consider systematic buying of the quality stocks on the discounted prices, that must result into good deal of profits over time. So all of those come under the above mentioned age bracket try to invest more in retirement benefit schemes in this time of lower valuations.
There is a quote that says, "a rising tide lifts all boats” in other words in the strong rising markets this do not matter, which stock you own because all go up with a trend and same is the trend in weak and falling market but contrary to the above all stocks fall downward.
But stocks at Individual levels act differently, In rising markets some go up in multiples while others hardly move up at all and in falling markets some fell severely and some resisted to fell so dramatically. It’s sure you want one that goes up significantly and that shows resistance in falling markets to sustain its downfall in comparison to markets and peers, when you analyze the stocks in both upward and downward phases you easily realize that the stock moving fast upward and the stock resistant to steep fall is usually comes out to be the same, thanks to an analysis that has stood the test of time for making money in rising markets and show immunity to steep falls, referred as ‘Value investing’ (to read more about value investing click here to view my previous article).
Further value picking is an investment strategy and not suitable for trading. Traders generally take short positions on stocks, with simply selling the stock first and then buy it back later. So if you short the value stocks and they go up, you could lose the money, this means that while trading one must find stocks that are exactly the opposite of value stocks. You want stocks that are very over priced and getting ready to fall. Preferably so overpriced that they will fall even if the overall market rises.
The SEC had temporarily put in place emergency measures barring short selling on financial institutions, that attracts lot of criticism from the big traders, has expired early last month.
There are two ways of long-term investing in stock markets, one’ on the basis of valuations and other following the regular dividend distribution policy, you can combine these two. As an investor you can make money only if you follow a discipline, invest with a planned approach and learn from your mistakes. This is the time of capital preservation for the expected hey days in future, yeah though tough to expect!!!
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