| Wednesday, July 30, 2014 | Issue #2343 | |
|
When Panic Strikes Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
 Every month, I get together with Alexander Green, Sean Brodrick, Matt Carr and several other Oxford Club investment strategists to shoot a video we call the Editors Roundtable. It's a lively discussion - and sometimes a debate - about current investment topics.
We just posted this month's roundtable, shot at The Oxford Club's Private Wealth Seminar in Quebec City, Canada, last week. The topic is "How to Trade Geopolitical Events."
Here's what I think...
Trying to trade based on the whims of Vladimir Putin, an idiot Ukrainian separatist armed with a rocket launcher or Hamas terrorists is a fool's game.
Sure, sometimes the actions of a madman overseas will disrupt the markets and hurt your positions. But other times, a geopolitical event will help your stocks. It's just that the violent ones that crush your positions are the ones that are more memorable.
So here's how you trade geopolitical events: You don't.
You trade based on your discipline - whether you're a technical analyst who examines price supports and resistance on the charts; or you trade based on momentum, valuation or throwing darts at The Wall Street Journal. Whatever works for you, keep doing it and ignore the newspapers and TV.
The most important thing is to make sure your position sizes are appropriate so that you make good money when things go right and you don't lose much when they don't.
Additionally, if you have trailing stops in place, you'll minimize your losses and protect your gains when there is a geopolitical event that causes the markets to shudder.
Sure, you could get shaken out of a position when markets tank due to troop movements across the globe. It's frustrating when your stock gets stopped out only to rally the next day or week.
But you always remember those and forget all of the times when your stop did exactly what it was designed to do, which is get you out before the stock falls lower still. After a few days, once you're satisfied that it was a good exit, the stop is relegated to the mental trash bin. In other words, you never think about it again.
Buy Panic
About the only time you should even be thinking about trading geopolitical events is if a sudden sell-off creates an opportunity to buy a fundamentally strong stock at a reduced price.
Earlier this year when Russia first invaded Crimea, the Russian stock market sold off hard. At that point, it was down nearly 60% from its highs and had plunged 16% in less than a month.
When geopolitical events cause that kind of panic in the markets, that's when I want to buy.
I found CTC Media (Nasdaq: CTCM), a healthy Russian media company with a yield of over 7%, had fallen 33% - more than twice the Russian market. I recommended the stock to subscribers of The Oxford Income Letter. And even after the latest 10% slide in the Russian market due to the downing of the Malaysian airliner, the stock is still up 18%.
(It's currently rated a hold, so I don't suggest you buy it now.)
The point is, about the only way I'll trade a geopolitical event is to find strong assets that panicked investors are dumping with no thought as to their future value. The only thing they can see or deal with is their own fear. That makes for excellent opportunities for the rest of us.
Of course, it's not easy to find the bottom of such panics, so you need to have your stops in place and be patient. Things don't always turn around quickly.
But if you're buying good value, it should work out in the end, regardless of what you hear on the evening news.
Good investing,
Marc
Editor's Note: Marc's advice today is exactly right for the vast majority of investors. But here's the irony: There's one man whose vast personal fortune should be tied to world events, since he has so much influence on them, but isn't. President Obama is among a very few elites with access to a "private" stock market open only to celebrities, D.C. big shots and the über wealthy... that is, until now. See Marc's report by clicking here. | |
|
The $11 Retirement Secret (Really)...
Please... Don't make another financial move until you review our secret for a far wealthier retirement. Over time, it can mean MILLIONS more in your pocket. Yet you can get started with just 11 measly dollars! Details here. | |
|
| |
In today's edition of Investment U Plus, subscribers learn about a media company that's raised its dividend every year for 21 years in a row, but thanks to investor fear is trading right now at a bargain. To learn how to access the premium version of Investment U, click here. | |
|
| |
Buffalo Wild Wings (Nasdaq: BWLD) gave plenty of positive news after the closing bell yesterday when the company announced second quarter results. But the updated full-year guidance left Wall Street with a bad taste in its mouth, sending shares down over 12% this morning. Let's see how Buffalo Wild Wings performs on our Investment U Fundamental Factor Test. Read On... | |
|
| |
Every month, The Oxford Club's editors get together to discuss what trends they expect to see in the upcoming month. And this month, they're at it again. The debate: Can you trade geopolitical upheaval? Read On... | |
|
|
|
No comments:
Post a Comment
Keep a civil tongue.