How To React To The Market Selloff
Wall Street Daily | Jun 25, 2013 02:07PM ET
According to Barron’s Kopin Tan, “The whiff of [interest] rate volatility” is all it took to send stocks reeling last week -- erasing some $775 billion in value in two days.
In case you’re wondering, that figure is equal to about nine months’ worth of Fed bond buying.
So my labeling the VIX ). Again, as traders get more skittish about the next gyrations in the market, they’re bound to ramp up their bets on the next move for the VIX.
Since the house always wins, it’s best for us to avoid making predictions about interest rates and volatility, and just invest in the companies that promise to benefit from everyone else’s wagers.
- Volatility Buster #5: Buy Value, Not Momentum
During bull markets, many investors get lazy and buy what’s working. And they’re all too quick to “pay up” for momentum stocks. But guess what? When volatility spikes, high-flying momentum stocks are the first to give back gains.
Since I don’t believe the bull market is over, we should respond to the market volatility by putting new money to work in undervalued stocks with hidden growth potential. By that I mean, companies with separate operating units that are growing at different rates.
Why?
Well, as I told WSD Insiders earlier this month, sometimes analysts get lazy and only look at consolidated figures. So a company with a division that’s growing at a rapid clip -- but happens to own another unit that’s flat-lining -- tends to be overlooked (and mispriced).
And since earnings continue to climb under the radar, such companies promise to march higher -- even if the multiple expansion for the S&P 500 grinds to a halt.
Sure, finding such opportunities requires more work. But it pays.
Case in point: When I mentioned this to WSD Insiders on June 11, I recommended an undervalued growth opportunity. And it’s up almost 15% already, compared to a 2% decline for the S&P 500 Index over the same period.
Yet, by my calculations, the stock could easily rally another 50% before the year is out. So it’s not too late to enter a position.
This post appeared first on Wall Street Daily.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.