Following up on my piece last week Is Another GFC Starting Now?, a quick V shaped recovery eventuated, only to give most of the gains back.
Whether you decide to enter the markets now will depend on the type of investor you actually are.
For me, I am both a traditional ‘Value’ investor as well as a ‘Growth’ investor as I have created two different portfolios.
The difference?
As a value investor, I am always looking for great global franchise businesses selling for below estimated intrinsic value. Lately, there have been many opportunities to finally do so. A moment I have been eagerly waiting for.
For the growth portfolio, I will be looking for companies which seem expensive when viewed via traditional measures like Price to Earnings ratio and Price to Book value, but exhibit continual increasing sales, earnings and high return on equity over successive quarters and selling at recently reduced prices.
In other words, I will pay up for such opportunities which will likely make a traditional value investor red in the face due to the price paid. Precision Castparts (PCP) is one such company which Warren Buffett has recently ‘paid up’ for. Generally, these companies tend to drop a little further when volatility occurs due to the higher prices commanded.
In my previous post Is Another GFC Starting Now?, I showed readers a few charts where you can easily research how the back end of the market is fairing, to cut through the market noise.
Nothing has changed.
In fact, the latest 2 Year Interest Rate Swap spreads, which I believe are a great leading indicator to potential global systemic risk is actually declining in both the US and Eurozone’s, which strongly suggest we are definitely not in a potential financial crisis shock, despite what the media is trying to portray.
Yes, China is slowing down, but many leading global businesses are immune to a Chinese slow down because China is an export driven economy which makes things for the rest of world to consume, rather than an import consumer, with the US being its largest consumer customer followed by the European Union and Hong Kong.
One thing that does concern me though is the current Volatility Index or VIX ratio which is still highly elevated, although not as bad as last week where it spiked above 50.
To be cautious, it’s best to slowly dip your toe back into the water rather than rushing in during this high volatility climate.
Personally for our value portfolio, I will gradually begin buying up great quality companies below intrinsic value while I wait for confirmation of lowering volatility before I begin buying up higher priced ‘growth’ companies.
I hope this helps with your own investing endeavours and decision making over the coming week.
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