How to Put Market Volatility to Use in Your Portfolio
- Details
- Created on Wednesday, 12 January 2011 16:52
- Written by Zachary Scheidt, Editor, Taipan’s New Growth Investor and Velocity Trader
- Hits: 2431
Last week, we talked about some pullbacks, particularly in the commodity sector. We weren't the only ones. Zachary Scheidt, editor of Taipan's New Growth Investor, hit the nail on the head with his latest broadcast to subscribers on Friday. It was so apropos that I had to share it with you.
Additionally, Zach talks about why -- and when -- volatility is a good thing, and how you can put it to use.
Be sure to read the Editor's Note at the end of the article for more information...
Why Market Volatility Is a New Growth Investor's Best Friend
Wow, 2011 is off to a crazy start!
As institutional managers struggle with holiday hangovers and get back to work, market volatility is picking up, and crosscurrents are creating some challenges.
To be perfectly honest, I love markets like this. Instead of the simple "risk on" or "risk off" days that we dealt with in 2010, the action this week has been more selective. Investors are allocating capital to and from different sectors -- dumping some industries to pick up exposure in other areas.
The result has been modest movement in the big indexes like the Dow and S&P 500, but much more pronounced movements in individual sectors.
What a great environment! I would much rather pick out the New Growth opportunities that are going to benefit from these allocation decisions, than try to guess whether Wall Street is going to be in a good or a bad mood this week.
The bottom line is that this volatility opens up doors of opportunity for us, and I couldn't be more pleased with the stable of existing and potential investments on my radar.
(By the way, investing doesn't have to be complicated. Sign up for Smart Investing Daily and let editors Jared Levy and Sara Nunnally simplify the stock market for you with their easy-to-understand investment articles.)
Commodities in Flux
The big story of 2010 was a ramp-up in prices for two important areas of the commodities market.
- Growing emerging market populations and a rising standard of living have boosted prices of agricultural commodities.
- Printing of "funny money" by the U.S. and the debt crisis in Europe sparked huge demand for precious metals as a storage of wealth.
But in the early part of 2011, we saw these two commodity areas give back some of their gains.
From a short-term perspective, these fluctuations looked a bit alarming. After all, the price of gold and silver dropped roughly 6% to 7% in the course of just a few days. Many of the red-hot mining companies dropped much farther as skittish investors liquidated positions.
Agricultural commodities were off as well with investors taking profits. But if you look at the chart of PowerShares DB Agriculture (DBA:NYSE), an index of agriculture prices, alongside the chart for gold, you'll see that this is a relatively minor setback compared to the gains over the past year.
One area that I am particularly excited about is the fertilizer group -- which has held its own quite nicely despite setbacks in similar markets. Our position in fertilizer producer Mosaic Co. (MOS:NYSE) hit a new high this week and will likely be one of our better performers in 2011.
Using Market Volatility to Our Advantage
While many investors will tell you that they hate market volatility, the very best in the business will offer quite a different story. This week I was discussing the action with a colleague who manages an investment advisory here in Atlanta. To quote his sentiments:
"Nothing is more satisfying than green in the P/L column when the S&P is red."
Market Volatility not only gives the truly talented investor a chance to stand out above the crowd, it also affords more opportunity for absolute profits. The old adage "buy low, sell high" is much easier to manage when you actually get a chance to buy low.
One More Commodity Note
You probably noticed that energy markets are picking up. Natural gas hit a three-month high this week, and oil crossed above $90 per barrel.
This is good news for our newest position and also has me doing a lot of research in alternative energy. I'm very impressed by what I see developing in that area -- and the story line is very intriguing.
So stay tuned. Our February issue is going to be a lot of fun to write and I think you will be amazed at the New Growth opportunity I am uncovering.
*Editor's Note: This article was edited to withhold a New Growth Investor recommendation. If you want to know what it was, join Zach's service by following this link!
P.S. Gold Went Up 76%... But This Made 975%. In every gold bull market of the past century, this investment class has outperformed physical gold. Over the past two years, one member of this class made 12 times more than physical gold. Learn all about this gold investment.
Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.
Other Related Sources: