Though the Ride be Bumpy, Don’t Get Off at the Next Stop


Profiting From The Markets' Turbulence


By Anthony Rhodes

Call me a glutton for punishment, but I absolutely love it when the stock market moves into a “corrective” phase, and begins to gyrate wildly in 100-point increments on a daily basis. This usually transpires during either the end of a period of rapid economic expansion, or when the overall direction of the economy is in doubt; in other words, when uncertainty decides to make an appearance. Take this to the bank: if there’s one certainty about the stock market, it is that it hates uncertainty. And what’s happening during these tumultuous periods of widespread ups and downs, is that the market’s desperately trying to gather enough data to let it know in which direction it should proceed.


While many investors view these periods with feelings of panic and frustration, the savvy amongst us never lose sight of the first rule of investment success: buy low, and sell high. You see, instead of being led by emotional angst, we use such moments as opportunities to shore up our stable of very good stocks, and the beauty of it is, we get to do so on the cheap. Now, do we possess some magical understanding of the market, inaccessibly attained by mere mortals? Of course not. But our confidence is borne of the knowledge that the stock market has a natural bias towards the upside, and it is this perception, which causes us to keep a “big picture” perspective, when others remain focused on the short-term movements of the market. 

Points of View

If you were to view a bar graph of the stock market, from its inception to the present day, you’d see the up and down record of the US economy in plain view. But, if you were to begin to walk back while viewing it, a very different picture begins to emerge. Where once there were periodic ups and downs when viewed up close, now appears to be only ‘ups’ as you move further back. This is what’s meant by the market’s natural bias towards the upside, and it is the primary source of support for those who buy good stocks, and hold onto them for long periods of time. You see, those who remain transfixed on the short-term will only see what’s happening from that perspective, thereby allowing them to be susceptible to the everyday whims of the market. But the wise understand that a technologically advanced nation such as ours, with employment historically over 90%, will only experience lulls in productivity over brief periods of time, and when such moments present themselves, they should be viewed as opportunistic, and not with trepidation. It’s also very important to remember that news organizations and the producers of shows about investments have to give an analysis of the market on a daily basis, and as such, are required to have a short-term perspective when it comes to their reporting. Your focus as an investor, should be to sift through the reports and distinguish the information from the advice; as those who are able to do this successfully, are least likely to panic during the markets’ tumult.

When Giants Fall

Even the most profitable, best managed businesses can fall victim to corrections in the market, and as a result, may wind up trading at prices which vary considerably from their historic norms. For this reason, smart money managers always keep a percentage of our clients’ assets in cash, just in case, so that if such a moment occurs, are able to swoop in and purchase them at very reasonable prices. You can do the same by keeping a portion of your assets in cash, and by creating a wish list of companies you’d like to own, but would not be able to afford under normal circumstances. Whether it’s that innovative tech giant you’ve long coveted, or that multinational conglomerate you’ve had your eye on for some time, once a correction takes place, you could be given that one golden opportunity to not only take ownership of a few of these names, but to do so at prices many haven’t sold for in years.

A very successful investor once said that he likes to purchase companies when all others are afraid to do so. Remaining true to this credo has not only enabled him to accumulate a vast portfolio of iconic American brands, but to do so at prices many would agree were considered steals years after their purchase. This discipline to remain calm while others resort to fear, stands as one of the defining characteristics of many successful investors, and should serve as lesson to all, that by simply doing the same, one might be able to produce similar results for themselves.

(Anthony Rhodes is the President and owner of wealth management firm The Planning Perspective www.theplanningperspective.com)

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