|
I cannot change the
direction of the wind.
But I can adjust my sails
- Anonymous |
We are presently in one of the most difficult
stock market environments in years. The crosscurrents of political,
economic and psychological factors are innumerable. They include: the
Iraq War, the state of the North American and world-wide economies,
interest rates, currencies, corporate profits, trade wars, etc. As
investors we must pay attention.
The key to successful investing, I believe is
flexibility. But the ability to alter a course of action to take
advantage of a temporary profitable market anomaly is never easy. It
is, in fact one of the most difficult investment decisions a manager
must make since it involves sticking out one's neck. Not surprising,
few are willing and able to undertake this task.
An interesting characteristic of the current
securities scene is the inordinate price volatility. While stocks
normally trade within an acceptable value price band, during recent
months we have witnessed stocks over and undershooting their intrinsic
values. Therein lies the opportunity. While stock trading is not
necessarily germane to good long-term investment performance (rather
it is successful and patient stock picking), there are increasing
opportunities to tack on an extra 2 - 3% or more of incremental
returns due to the present excessive volatility. This can be
accomplished by paying particular attention and acting on short-term
financial abnormalities. No doubt there are risks to this investment
activity. They include:
- spending too much time on short term trading
and less focus on invaluable fundamental analysis.
and
- trading out of a temporarily
overvalued security when in fact the stock might be poised for a
significant price advance ( i.e. a breakout on a technical chart)
which could result in a lost opportunity of 50 - 75 %
appreciation.
Regardless of the risks there are numerous
potential trading opportunities, which may present themselves due to
the present market volatility. Granted not all opportunities may be
practical nor simple to execute. Nonetheless, as portfolio managers,
we must pay attention for even if we undertake one out of every four
or five viable opportunities, a significant incremental return may be
earned for our portfolios.
