As I sit writing this piece, on Thursday afternoon in the US, I am looking at a screen filled with red and am reminding myself of the sage advice from the cover of “The Hitchhikers Guide to The Galaxy”…”DON’T PANIC”. I couldn’t find the “large, friendly letter” font that this should, according to the Hitchhiker’s Guide author Douglas Adams, be written in, but they are wise words nonetheless.
In fact, if you are to be successful as either a trader or investor, you should do as the denizens of dealing rooms do, and see any volatility as opportunity rather than a cause for panic. That, however, is one of those things that are a lot easier to say than do. We are all aware of Warren Buffet’s admonition to be “greedy when others are fearful”, but those of us old enough to have traded through 2000 and 2001 as well as 2008-9 cannot help but worry. The day traders among you will naturally see this as traders do; any movement, up or down, is a chance to profit. For longer term investors, however, they may be tempted to sell and sit out the next few days or weeks. That would be a mistake in my opinion.
In fact, if you think about it logically, particularly for energy investors, nothing about your base case for investing has changed. The world’s population is still growing and they are still demanding increasing amounts of energy, even as the companies that fill that need become cheaper every minute. Any weakness in those best placed to benefit from the big picture, namely large multi-national oil companies, should be seen as simply an opportunity to buy their stock at a discount.
In these days of 24/7 coverage of news in general and financial news in particular it is easy to exaggerate every problem’s potential to cause disaster. It wasn’t that long ago that Greece, for example was, according to some, about to cause the collapse of the world’s financial system. At that time, anybody predicting an oversubscribed auction of Greek government debt at all, let alone a 5 year bond with a yield under 5%, would have been seen as a lunatic, but that is what we saw this morning. When you look at what is happening now, bear that in mind.
This is not a drop caused by worries about either the US or the global economy. It is a correction led by sectors that have looked frothy for a while, such as biotech and social media stocks. When companies are valued…