About a year ago, I started taking my investing seriously. I personally researched the industries and companies that I was interested in so that I would not only reap the profits of a good portfolio, but also gain some valuable experience with regards to the stock market. At first, I was successful. Now, I am not. Whatever gains I previously enjoyed have been erased. Thanks to the war in Libya, the earthquake in Japan, debt issues in the US, and most recently, potential financial catastrophe in Europe, my portfolio has suffered.
But, I am not a speculator. I am an investor. Rather than try and bet on the short-term reactions of the market, I conduct research, evaluate growth opportunities, and invest in companies that I think will flourish in the long-run. Consequently, I've decided to shut my eyes to the daily ups and downs of my own portfolio, remaining confident that my stocks will outlast the recent pessimism that plagues them.
Instead, I've been paying much closer attention to the stocks that are not in my portfolio.... I'm looking for my next investment. The markets haven't been very inspiring of late, but on the upside, stocks are incredibly discounted, and artificially cheap. The fall in stock prices is the result of the market's pessimism and does not necessarily reflect companies' inability to grow or remain profitable. I believe that our politicians will succeed, and that they will lead our nations through today's economic problems. I believe that there will be a 'next bull market'. And so, I believe that when some of the best growth stocks are trading at multiples of 10-13x EPS, there is some money to be made in the long run.
The only question is: is the timing right? In the past few days, the markets have rallied and investors have enjoyed some significant gains. Are these signs of optimism long-lasting, or are they just over-reactions to recent news? In my opinion, the optimism will be short lived. Until actual policies are put into effect, and concrete, positive results follow suit, I think the market will continue to over-react to news, regardless of whether it's positive or negative.
Finally, I ask myself: "To invest, or not to invest?". For now, I am going to continue playing the waiting game. Stay tuned to see what happens next!
I would have to agree. It is tough to look at the portfolio every single day when on monday it drops by 5% and then increases on tuesday by 4%. The markets are so volatile, and for some investors that's great, but it is almost impossible to read.
ReplyDeleteI think we are going through one of the most volatile markets in history. Like you said, this is because of the debt crisis. I believe if you don't know how to read it, it is just best to sit back and invest for the long-term. However, information has become so easy to access with the internet that it has created a psychological market that is driven by news. The most basic news stories can force a stock up or down by as much as 10% in a single day. When we are not faced with the debt crisis, this is the type of volatility that you can easily take advantage up. For example, Netflix splits dvd business and announces a price hike, time to sell and consider when it is a good time to buy back in.
Although the markets can be frustrating at times, I think they will level out and be able to sustain reasonable growth. But, I don't believe we will ever experience the same growth as we did from the 80's to early 21st century, as this may only be possible for emerging economies. For now, I think it is just best to hold a few long and have some fun with the extra cash in account and try out your day trading skills.