Just when investors thought the markets could not get any more volatile, we have a week like last week which takes everyone on the ultimate roller coaster ride. Never in history has the Dow Jones moved plus or minus 400 points in a day for four straight days. This does not include the intraday moves of 600-plus points during each of those days as well. Has this market gone mad?
I cannot remember a time when the global markets moved up or down so much based on rumours and emotion. There was one point last week when Reuters reported that an unnamed source said Asian banks had cut business with some of the French banks. In a matter of seconds, the stock market in the U.S. went from being up 100 points to down 100 points, and the information hadn’t even been verified. This clearly shows how insecure and fragile investors are at this time.
The direction of the markets over the past few weeks seems to be dictated by what is happening in Europe. Many investors think the downgrade of U.S. debt caused the markets to fall as much as it has, but I don’t believe this is the case. The U.S. debt issues, in my opinion, exacerbated the situation but the underlying cause for panic on the global markets stems from Europe and their debt issues. For a while, short sellers, speculators and traders concentrated on Portugal, Ireland and Greece’s woes. When these were temporarily resolved, they moved on to Spain and Italy. Now, they are attacking France, the second largest country in the European Union. When will this end?
During this time of crisis, it has become quite amazing to me to hear investors speak about gold as a safe haven for their hard earned money. I am not sure when gold became the investment individuals could purchase as a “safe place to put your money.” Yet, in speaking with investors, many have asked me if they should be buying gold for a larger portion of their investments as if gold was like a fixed income instrument (e.g. bond) or a growth and income paying equity (e.g. of a conservative investment). In receiving these questions, I begin to wonder just how much further gold can rise. As Warren Buffet once said “Be greedy when investors are fearful and fearful when investors are greedy.” In my opinion, right now, many are being greedy with gold and thus it may be time to scale back on that investment. I would still have it as a part of a diversified portfolio, but I would not overweigh gold, or any sector for that matter, during these times of high volatility. I believe asset allocation to be the best defence against market turmoil for growth investors.
Thus, if you are a growth investor that just went through what is in my opinion one of the most volatile weeks in history, I think you need to take a step back, re-evaluate your goals and objectives for your money and then make your next move. If, for example, you have a longer time horizon, then times like this are great buying opportunities for the long term. There are some really good bargains out there in most sectors of the market that investors should be considering. Many of them pay a great dividend as well. My advice is not to panic, be patient, and figure out how to capitalize on this current environment rather than run scared from it.
If you have any questions regarding the above article or are looking for an investment advisor to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company. This is not an official publication of DWM Securities Inc. The views expressed are those of the author alone and are not necessarily those of DWM Securities Inc.