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March 13, 2008
What The
It is important after conducting research and seeking potential investment opportunities that the investor quickly reacts to market events. For example, if you conclude that Wal-Mart shares offer an attractive return profile at $42/share, you have to be prepared to start your purchases when and if shares dip to this level. As recent years have shown, WMT shares have dipped to this level only a few times, and in each case you had to react quickly to take advantage.
With the global financial markets currently experiencing a heightened state of volatility, you would think that the above ‘be prepared’ motto would be yielding many investment opportunities. After all, stocks are generally lower in 2008, commodity prices are trading dramatically higher, and the activity in the currency markets is enthralling. If the investor can not discover opportunities now - with greed and fear locked in many epic battles - when?
Unfortunately, exceptional amounts of volatility across many markets have yet to produce the type of environment that makes the value investor confident. Instead, speculative activity in the commodity markets is – apparently – linked to a quickening decline in the U.S. dollar, equities are locked between hopes of a bailout rebound and the reality of a U.S. recession, and bonds, well, who really knows. Then you have days like today – or when the Euro hits 1.56 to the dollar, the dollar busts below 100 Yen, gold inches towards $1000 an ounce, oil rages near record highs, hedge funds are blowing up, there is – literally – countless U.S. bailout efforts either just declared or on the way, and the Loonie is stuck doing very little around par. I note the ‘loonie’ because this is a strong consideration for Canadian investors thinking about shifting some of their exposure to USD. The loonie isn’t soaring against USD like the Euro and Yen, which makes it very difficult for Canadians to conclude that now is the opportune time to make the switch to USD.
In short, that Wal-Mart at $42 idea isn’t coming into view because the meltdown in U.S. equities has not been broadly based, mayhem in the currency markets is causing mass confusion in other markets, and the Canadian investor can not make heads or tails of what may happen next. Against all this action the speculator has all the opportunity they could dream of. Unfortunately the value investor is forced to wait and think, what the…
As for speculations: buy a dollar rebound (against the Yen), watch - really watch – gold, and keep your finger off the equities trigger for now.
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