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For the first time since early 2003 volatility has returned to the marketplace. However, given that we are exiting what was an unusually long period of calm, it is difficult to conclude that volatility has peaked.
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While an increase in volatility alone may not be a good reason to buy and sell stocks, it is worth remembering that the VIX can mark heightened periods of investor fear. Under the adage ‘buy when others are fearful’, the higher the VIX goes the more attractive the markets become.
In order to best take advantage of volatility in the markets the investor needs to have a plan of action in place. Our plan has been for some time to hold a significant amount of our portfolios in cash and wait for more attractively priced opportunities. This plan is worth elaborating on at this time.
First and foremost, after yesterday’s removal of Brown-Forman we are willing to ride out any storm with the four remaining Wish List companies, and would only consider removing a stock if the fundamentals change or share price(s) rally. Our dollar cost averaging opinions, from most attractive to least attractive, are currently as follows: PMACA, AMS, LAKE, and HLF (TSE).
As for Watch List companies, we are directing our efforts currently at eight prospects. With the exception of Wal-Mart, these are companies that we believe can perform well regardless of how the U.S. and global economy performs. They also represent eight companies that are close to price levels that we think are attractive. While not confined to this list, we have nonetheless moved our interests away from beaten down areas of the marketplace (i.e. financials and housing) and anything we consider to be cyclical, including energy and utilities.
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Schweitzer-Mauduit International Inc.
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Anheuser-Busch Companies Inc.
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While we have passed on many of our buy target prices before, in our opinion the first spike in volatility since 2003 makes it increasingly likely that we will soon acquire a new holding.
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