Thursday, October 16, 2014

Enjoy the October roller coaster


This is a though October with markets seemingly in free fall. The gurus are at it again: Quantitative easing number 4 required according to said gurus and oh, by the way, said gurus also expect a revival of the European debt crisis and the end of the world. Oil is to go to hell in a hand basket as well and we’ll see war in the Ukraine and in Iraq and if everything works out we’ll also see the collapse of the Chinese economy in the wake of the latest democracy protests in Hongkong. Boohoo Boohoo! Plus… Ebola!
In the meantime most economies are not even in recession yet, the U.S. economy is growing at a decent clip… who wants really 4% real GDP growth, unless you’re yearning for inflation and high interest rates, something said gurus also fear! Yes they can have their doomsday cake and eat it too. Earnings season has started in the U.S. and even if earnings growth only turned out to equal the consensus guru forecast of 6.7% while most stock markets have barely gained over the last year, it should result in higher stock prices, especially after banner earnings in the 2nd quarter.  It is not that stocks were terribly overvalued, to the contrary, stocks were fairly valued and now valuations are in attractive buy territory.
If you have built up your cash, as I have been advocating over the last 12 months or so, here may be a buying opportunity. Don’t shoot your powder all at once; market timing doesn’t work very well – only buying at the right price works and maybe you can buy Apple, Microsoft, Qualcomm, Johnson and Johnson, Canadian Banks, Peyto, Canadian Natural Resources or plain market ETFs at even  cheaper prices!  My favorite approach is to sell put options on stocks you like to own at current prices; with option premiums in your pockets, you end up buying these stock even cheaper.
As said, don’t shoot all your powder, just dip your toe in the water or add small amounts of shares of good companies you already own in your portfolio. Only when it is clear that this correction has bottomed start using up significant amounts of cash.  Enjoy the rollercoaster ride.

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