5 June 2008
All market corrections end at some time. The most serve market corrections rarely last more than 12 months and the average less than eight months. If we assume that the current market corrections is going to be one of the worst, we probably have another six months of turbulence ahead.
Many investors are asking themselves if they should sell equities and place their funds in cash until the current storm blows over. In our view its probably too late for that. While investors should reduce their exposure to those companies with high debt levels, and stocks driven by consumer sentiment, the right things to do are sit tight, reposition portfolios towards the sectors that profit from inflation – mining, mining services, energy, soft commodity producers and their suppliers, basic household need retailers (who automatically pass on any price increases) and those businesses that have strong and sustainable business models and retain a healthy cash balance to take advantage of any bargains that may emerge.
Time and again, successful long term investing comes back to the purchase, at sensible prices, of businesses with sustainable competitive advantages, run by able and honest people, and to borrow a quote from that most successful of all investors, Warren Buffet, “The function of the capital markets is transfer wealth from the impatient to the patient.
Putting together a thoughtfully diversified portfolio with the assistance of your adviser should see you through the markets inevitable ups and downs in the coming months.
Those who play safe in 2008 should arrive in 2009 with their capital base intact.
Stock pickers will do well in these turbulent times – they always do.
With the help of your adviser, draw up a list of stocks you’d like to buy on the cheap. You may be surprised at how quickly the prices will move your way.
