As you know, the stock markets have been most volatile in recent weeks and days. US and China called for a truce on their trade war and the market is up a few percentage points; Donald Trump tweeted that he is a Tariff Man and the market is down a few percentage points. Signs of a flattening yield curve caused a few percentage points drop in stock prices. What should you do in this volatile market?
Some principles never change like the principles of value investing. At this point in time, I am finding a number of good companies with very strong economic moat already selling at a discount and you can perhaps refer to my writings on Facebook and Apple.
Having said so, market can get very very cheap when there is huge fear and big sell-off and while many people feel there is going to be another mini-bull run before the big crash, the truth is nobody knows better. As such, at this point, I personally do the following few things:
- Build in more safety of margin when I do my valuation of stock prices to determine the intrinsic values. In addition, I will enter into a position in stages. For example, if I feel Apple is a good bargain at $155, I will first enter at $155, then perhaps at $132 if it drops further with a third entry point at about $112.
- Maintain more cash in my portfolio to tap on opportunities offered by Mr Market.
- Do more homework, and fewer trading activities. At this time, I actually spend more time analyzing stocks and building up my shopping list with various entry prices for great companies which I have always wanted to own. And I am very patiently waiting for the right time.
I found a good video below explaining the inverted yield curve and also what you should do in such turbulent market.
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