Making money from the stock market has nothing to do with forecasting, it has everything to do with responding!
Turbulent times that we have recently witnessed have really shaken things up. Prices have moved down, many investors’ confidence has been shattered and if you believe the media, the World is getting sucked down the “plug hole!”
Best get out while you can, is the mindset for some!!
But is it really as bad as that?
Actually no! Then again, misery always loves company!!
We have seen a variety of Global events kick in – China in particular – which has exerted pressures on World markets, largely with the slowdown in that economy and the knock on effects in the global commodities space.
Take crude oil, which at present, is at 6 year lows, given higher OPEC production and softer demand for the commodity. Equally, Iron ore has been thoroughly “worked over” – think of it looking like “Rocky Balboa coming in to round 10!”
The commodity price has dropped from a high of $187/tonne to presently $51 – a fall of more than 70%. As a consequence, the mining stalwarts – BHP and RIO have also been hit hard, as you would expect. It should be noted that at least part of this fall has been softened by the weakness in the Australian dollar.
Now many forecast that the good times in China would end, one day, but how many have profited from this?
This is not about trying to catch a falling knife and buy stocks up because they are cheap. This is about positioning yourself proactively and more importantly flexibly to deal with things.
In the first instance, as a forecaster, if you guessed it right, that the market was going to fall, did you buy protection or perhaps hedge? If not, shame!
How about your portfolio? Did you shift around some of your holdings?
While I for one, did not forecast the severity of the market’s falls, but then again, I am not into forecasting markets…
Instead, I focus on how to best respond to events.
Adjusting the holdings in the portfolio accordingly and where necessary, either buying protection (I very rarely do) or adopting flexible strategy.
Looking at some of my holdings right now, I note that I have quite a defensive slant to the portfolio.
Telstra made a cameo appearance a few weeks ago – not a preferred stock of mine, but a largely defensive holding. The rationale, other than being defensive has included the upcoming dividend plus some call premium too, and thus far, the trade is panning out largely as expected.
Vastly different from the rationale for my Tesla Motors trading some month ago, but then again, markets are very different today!
Additionally and for similar defensive reasons, Pfizer has also been in my portfolio for a couple of months now. Again, this stock is another defensive play and has provided an opportunity for several rounds of call selling. Also, as expected, Pfizer has weathered the storm of the market’s turmoil, very well, as it should.
I currently have no mining companies and, with the exception of Apple, no major exposure to the “big technology” space. In fact, when it comes to growth type stocks, rather than defensives, Lennar, the US house builder is amongst the few I am currently holding.
The rationale for this stock is my strong fundamental view on the sector and technicals on the chart. It is also relatively insulated from global events, being a US house builder. In actual fact, the stock is a beneficiary of softer commodity prices. For example, think about how much copper is used in house building (pipes and wires) or timber for framing and flooring etc. These prices have fallen sharply, meaning lower cost inputs for companies like Lennar.
There are plenty of other holdings too, but I share these examples specifically, because they reflect a shift in the focus of the decision making to accommodate what has actually been happening across the market.
This is what makes the stock market work, even in times of turmoil…
Because you, the investor, have the ability to adjust the focus or exposure within your portfolio to better suit the market conditions as at right now. For example, when commodities base out, and potentially start to recover, mining will make its way back into my portfolio, for sure. Just not right now!
Yes, the headlines have suggested a very turbulent time across markets, but that is the danger of trading and investing based on headlines, rather than the story. Beneath this, as explored in this article, there have been areas of solid performance and being flexible enough to accommodate these opportunities is critical to your long terms financial success.
Think about playing golf. You cant or at least shouldn’t use the same club for the entire round. Trading is the same. There are times you will shift strategy, naturally, but even within a strategy, adjusting the “cross hairs” to suit the market and specific stocks, can make for a very different outcome. So yes, there is turmoil across markets and, at the same time, there have been great opportunities.
The key question here is “Did you manage to get your share of the opportunity?”
Profiting from market turmoil is critical and can be done. Learn precisely how right here!