How to Invest in Today's Turbulent Stock Market

How to Invest in Today's Turbulent Stock Market

Location: BlogsAsk Doug!
Posted by: Doug Gerlach 10/1/2008 1:25 PM

With all of the uncertainty in today's markets, it can be a confusing time to be an investor.

On Monday, September 29, 2008, investors saw the largest point drop in the Dow Jones Industrial Average in its 102-year history.

On Tuesday, two-thirds of that loss was recovered.

On Wednesday, who knows what could happen?

But looking back at the stock market over time, it's clear that it's seen worse and has always recovered. There's no reason to believe that the market won't come back around -- given time, that is. Those investors who put their confidence in the resiliency of the U.S. stock markets will be rewarded, as long as they maintain the proper perspective. In five years, investments made at today's bargain basement stock prices will quite possibly be seen as smart moves.

Here are a few points to consider as you plan your moves in the weeks and months ahead:

1. Remember that the market always operates in cycles, expanding and contracting over time, but on a completely unpredictable schedule. Investing regularly throughout the peaks and valleys is key to a successful long-term investing approach. In fact, wealth is often created in greater scale as the result of investing during down markets. Of course, this requires courage and the conviction that the markets and your holdings will rebound.

2. Most certainly, don't stop investing in the stock market. Many stocks that you study will be offered at or near historically low valuations, and if you try to wait for the market to reach its absolute low, or if you wait for a "clear sign" that the market is rebounding, you'll miss plenty of opportunities. I've been increasing the monthly contributions that I make to both of my investment clubs, and expect to reap the rewards from the regular investments that my clubs will continue to make in the coming months.

3. Focus on quality companies, now more than ever. It's likely that the interest rates will rise and access to debt will tighten, so companies that are highly dependent on borrowed capital to finance growth or operations may struggle. Companies with low credit ratings should be avoided. Consider the trend of a company's debt-to-equity ratio over the past few years, as in Section 2C of Toolkit 6's Stock Study form. Look to the Complete Roster of Quality Companies on StockCentral for ideas to study.

4. Consider carefully before investing or continuing to hold financial companies. There's no doubt that the regulatory climate will change in the coming months and years, with big changes in government oversight of financial markets and the structure of financial companies. I expect continuing consolidation of financial companies, with mega-firms swallowing up smaller concerns, leading to a general state of uncertainty about the financial sector. With so much being stirred up at present, it may be some time before the dust settles and the winners in the sector become apparent.

5. Re-evaluate existing holdings in light of their exposure to the credit markets, the housing market, and their levels of debt. Companies that don't pass muster are prime candidates for replacement. With the high number of bargains available now in the market, chances are good that you can find stocks with higher quality and higher total return prospects than your questionable current holdings. Don't lose sleep over stocks that don't inspire confidence -- upgrade your portfolio by swapping out these stocks with better prospects.

As you invest in your personal or investment club portfolio in the next few months, always remember your long-term focus. ICLUBcentral's tools are designed to help you build wealth in the stock market over a five-year and longer horizon. Patience and confidence go hand in hand with successful investing.


http://www.stockcentral.com/learn/blog/tabid/159/EntryID/43/language/en-US/Default.aspx