4 Strategies for a Volatile Market

Brittney Barrett  |

If there’s one thing investors are certain of right now, it’s that continued volatility is ahead. Whether it will lead to a crash or a recovery is still up for debate, but the uncertainly can be pursued in different ways.

Short-selling: Many investors have been short selling stocks in an attempt to benefit from the catastrophic single day losses we have been experiencing. With the extreme undulation,  short-selling theoretically looks like a viable strategy. That said, only highly experienced investors should attempt this. Small late day rallies often occur when investors attempt to snap up bargain bin stocks near close. This consequently eliminates the profits and makes the practice an exercise in futility.  Timing a short-sell is no easy feat, especially when investors have no historical metrics by which to assess the direction of the market.

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 Don’t Buy Anything:  Playing is safe may not be such a bad thing in a climate like this one. Bold investors scooping up ailing financial stocks or major retailers may see the reward for their risks, but global economic slowing exists whether or not the U.S. is able to overcome the stigma of a credit downgrade. European debt contagion is another looming issue that could sorely impact a full recovery. It may be wise to wait until there’s a full quarter beneath the Aa+ credit rating before re-entering the market. Remember that many of the historical crashes occurred in the early fall months and perhaps hold off until those have passed.

 Decide When to Sell: Emotions are high right now and many investors will have to make quick decisions on when to buy and when to sell. A way to prevent making a wrong move in the heat of the moment is to decide a price point, either high or low at which the investment, or a percentage of the investment, should be sold off. When the market is this volatile, it can be easy to try to sell when shares are flat, but it’s important to assess how much the stock will be impacted by the issues currently facing the economy and decide what to do with it BEFORE excessive losses are incurred.

Make Long Term Investments: The market and the government are highly tied into each other but at the end of the day, supply and demand is what drives companies and stocks. Investing in corporations with long histories of strong distribution, sales and a classic brand name could end up being a fruitful long-term investment. Most of these stocks are not far off their average sale prices but will likely push even higher as investors seek increasing safety. Examples of these companies include Coca Cola (KO) or Anheuser Bush (BUD). The first one tends to go up each year alongside higher demand and continued market tailoring while the later will benefit as people seek out an inexpensive brew to drown their sorrows about the weak economy.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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