Uncertainty in the Markets

The markets are unique in their movements. Many people see the current situation as one of prosperity, but in actuality, it could be the beginning of uncertainty. And we all know that the markets do not like uncertainty. While I am not going to be political in my posts the new administration is making the markets uneasy. From immigration. To possible trade wars with allies and other foreign powers. To the possibility of tariffs on certain imports. To attacks on other members of the government. These are all things that the markets will not like or appreciate.

Let us face the facts, the markets like and enjoy predictability, not uncertainty. As an investor, you want the periods of time when things are status quo and not in a constant state of flux. The political environment both inside and outside of America make it a difficult period to try and guess where the markets will indeed go next. While I am a big fan of emerging markets, they have been languishing for many years now. Are they primed for a breakout? I had hoped so several months ago that they would see such an action but it has failed to materialize. But that does present a good buying opportunity if you so wanted to expose part of your portfolio to those markets.
So how do you buy in a market that is near all-time highs and ripe with uncertainty? The answer is careful of course. As the markets have been on an incredible bull run since the near-collapse of the financial system in 2008, there will always be opportunities to buy in the markets. As I have stated the markets like predictability and in times like these the markets will advance and retreat at times. The key is to find a security that you wish to add to your portfolio and decide at what price it makes sense to purchase. When there is a small, or large, correction in the markets you must be prepared to act quickly and get in at your predetermined price point. The key is to buy gradually and not all at once as that makes it more difficult to see your potential gains. If the price of your security goes down 5% buy a quarter of what you ultimately want to purchase. Then see if it goes down further or back up. If it does go down more, you can buy another quarter at say another 3-5% decrease in price. If it goes back up, be patient and see if the trend appears to be going one way or another, and make decisions based on what it is you see in the price movement.

I know most people think buy low and sell high. Makes sense right? However, the reality of it is that most people do indeed buy high and panic and sell low. So one would think that buying now would not make sense as we are near all-time highs. But that is not the case at all. As history has taught us the markets are can bounce back with enough time and can reach points that most people thought were impossible. DOW 20,000 anyone? Here we are not talking about trading in any fashion but rather long-term investing. Yes, it makes little sense to be buying much of anything right now if you are not in the transaction for the long haul, traders need not apply. Do you think Warren Buffett would invest hundreds of millions in equities if he thought that they would not indeed go higher over a long period of time?

There is a book titled Buy High, Sell Higher by CNBC contributor Joe Terranova that deals with trading and not buying for the long-term. But after reading the book, it can be applied to long-term investing as well as it will explain how to buy when the markets are high and prosper. If you read the book with the mentality of an investor and not a trader, it does provide some very beneficial information that can be used to the advantage of someone who is looking for long-term purchases. Otherwise, if it were not possible to invest at any price point, the markets would not fluctuate in the manner in which they do. If people were not willing to buy when prices are high, then they would fall due to lack of demand. Buying solid companies at any price can be profitable if you are investing for a long period of time and not in it for a simple trade. Of course buying as low as you can increase your profits but that is secondary to the fundamentals of the company you wish to purchase.

So the key to investing in times like these is to be patient and look for the opportunities as they present themselves to you. Buy in lots and not all at once. Look for big and small pullbacks in an equities price that you can take advantage of when they do occur. And invest for the long haul and not as a trader.

If you have any questions or want to leave a comment, feel free to do so and as always feel free to contact me privately if you are not comfortable posting on the site.

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