The US markets took a big whack in overnight trade. We can expect this to keep roiling the Aussie market for the moment.
There’ll be lots of commentary about China and the Fed and whether the bull market is over.
Is this helpful?
Probably not. I’ve been reading the same thing for so long now that I don’t put much store in short-term ‘macro’ analysis.
That’s not to say we shouldn’t keep an eye on what’s happening in the world. But stocks are volatile. Get used to it.
A friend of mine told me last week that he expected a sharp correction of the US market to give valuations a really good test.
Looks like we’re getting it.
Here’s what I’m thinking…
There are three ways to turn this turmoil to our advantage.
One is to look at the stocks that go down the least, relative to the market.
Doing this indicates those that are in ‘strong hands’ and those that are not.
The second thing is to consider buying the dip in stocks you want to own — if you’re prepared to hold for the long haul.
Consider: I mentioned yesterday that one of my stocks has entered into a new agreement to sell in America.
We found that out on Monday morning before the market open.
It’s a great announcement for this business.
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It also has nothing to do with trade relations between the US and China or the level of the Chinese currency — the current factor we’re told is dragging down the markets.
In two to three years, it’s hardly likely anyone will remember the volatility this week.
But this business will have either succeeded or failed on its own merits. But you can buy it lower today than you could on Friday. Make the most of it!
I happened to be going over some old papers yesterday. Back in February 2018, I put aside the front page of The Australian.
It was just after Trump initially announced his tariff policy. That shook the markets in a big way, too. The headlines were ugly.
But plenty of stocks have gone up since. And opportunities will present again.
There’s a third way to deal with a difficult stock market…
Uncorrelated ideas can help here too
That’s to have some positions in your portfolio that can benefit from this kind of turmoil.
The fancy way of saying this is those that are ‘uncorrelated’ to the stock market.
It’s one reason I’ve suggested buying bitcoin this year.
The mainstream press says little about it — but bitcoin has had a monster rise this year…and went up 10% as this stock squall hit the US in Monday’s session.
I wouldn’t be surprised in the slightest to find a lot of the buying coming out of China. That could prove to be a lot of money looking for a new home.
It’s always nice to have positions that can benefit under different scenarios.
Expectations can be a dangerous thing. The markets are designed to wrong-foot us all of the time.
For example, I took the view that the Aussie dollar gold price may not fire this year. The market proved otherwise…it’s trading at a record high. Gold stocks have stormed up.
However, my earlier view didn’t stop me from recommending a gold explorer back in December.
I just tried to make sure it could still rise regardless of what the gold price did.
Macro predictions are exceedingly difficult to do.
It’s best to focus on companies and the people who run them…if you’re investing, as opposed to trading.
I still like companies with overseas exposure best. The Aussie economy is grinding along at slow speed.
How do we know?
Credit growth. The Australian Financial Review reports that lending from the major banks was at a record low of 2% in June.
Granted, the numbers might start picking up as we go along the year.
But I still prefer having overseas ‘wildcards’ in play.
That sets the scene for any company to release a bullish announcement that could lead to big earnings down the track.