As the markets outperform underlying fundamentals, there will be a correction in the near future that could be very ugly this time around. A 2008 Motley Fool article (during the financial disaster) noted that Baron Rothschild was now referring to the time when he said, “Buy when there’s blood on the streets.” The following 5 ways have been listed to help you be a better investor during difficult times:

  1. I’m scared, I’m very scared – Instead of looking at how much you can make by buying a stock, consider all of the options you have to lose. Bruce Berkowitz who did the Fairholme Fundswears by this strategy. He tries to think of every possible scenario that can kill a company – and if he can’t find one, then After a significant correction, he will buy; a case can be made of buying virtually no company. Consider General Electric (GE), a company that has increased its dividend for 32 straight years but decided not to increase it in 2008.
  2. Avoid black boxes – Be suspicious of companies that you do not understand or whose finances are opaque. If you don’t understand the business model, don’t buy it at all. Buffett invested in Goldman Sachs ((GS) . However, if you don’t understand what GS is doing, you’d better look elsewhere for an investment.
  3. Invest only money you don’t need anytime soon – Assume that the short-term market remains volatile – even after it has smoothed out. This approach prevents you from investing the money you need in the short term, protecting you from losses that you cannot bear.
  4. Just get in – And all of this means that you should be suspicious of how your chosen investments will perform in the first place. When the market is so volatile, don’t invest all of your money in one stock at once. Put in a serving instead when you see an attractive opportunity, but save some money to buy more if it drops.
  5. Buy with a discount – Make sure you buy stocks that are actually cheap. Many companies could trade at prices well below a market correction – but that doesn’t mean they’re cheap.

The article concluded with the words:

There is blood on the streets. So if you can handle the volatility it is really a good time to invest – but invest suspiciously and fearfully. It will do your portfolio good if you do.

Source: Why You Should Fear the Future

Full Disclosure: No position in the above securities.

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Tags: GE, GS,.


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