Business and Finance Times

From an investing perspective, the year of 2010 will go down as one filled with uncertainty, volatility, and risk aversion.  Each factor seemed to feed on the other to produce a year of wild swings and ranging, sideways market conditions.  Many investors headed for the exits in droves and began researching other alternative investment modalities.  In times like these, the best advice may be to take a deep breath, calm the mind, and then get back to the very basics of investing.

Value investing has never left Warren Buffett, or his mentor, Benjamin Graham, out in the cold.  When times were at their darkest, these men saw the opportunity in chaos and continued to work with their tried and true principles that had guided them so many times before.  Markets move in waves.  It is this very motion that produces value, the difference between a market price and the intrinsic value of the asset at hand.  There are numerous ways to hunt for these bargains, starting with low price/earning multiples and high dividend payouts for one.  If you do the work, then a 50% margin of safety, or value as defined above, will provide your reward over time, even if risk profiles are not the most favorable.  Consistency, not perfection is the goal.

Fundamental analysis may form the basis for your research regimen, but technical analysis, including the use of various technical indicators, will optimize the timing of any intended market entry.  Once again, markets move in waves, especially when volatility is present.  Learn to appreciate volatility.  Not only does it create value distortions in stock prices, but the majority of technical indicators that have been designed over the past few decades are there to forecast overbought and oversold conditions, especially during volatile swings in market values.  Buying low, and then selling high has always been a good investment strategy.  Use the tools that will help you achieve this goal.  Gut instinct is nice, but is more likely to be more unpredictable than a Relative Strength Index oscillator.

Now is also a good time to look at yourself in the mirror.  What kind of investor are you anyway?  Have you ever asked this question before?  Do you want to do the work researching the gamut of stock offerings or would you rather act impulsively?  These are important questions that need the right answers to determine if your investment style is holding you back from being the true investor that you are.  Many prefer a “buy-and-hold” strategy, but do not want to put in the hours.  Sector investing and exchange-traded funds were developed for just such a personality.

If long-term investing does not fit your behavior profile, then perhaps a more active trading environment will suit your tastes.  Many investors have opted to learn the currency markets in hopes of becoming an active forex trader.  Specialized training is required since risk profiles are high, and technical analysis proficiency is a must have.  Intrinsic value is nowhere to be found, but “relative” value is the new benchmark when evaluating currency pairs and their propensity for favorable trading trends.

When times are tough, the tough get going right back to basics.  Mr. Buffett focused on knowledge, experience and emotional control to guide his efforts, ignoring the latest investment fad or “secret” to come down the pipe on a given day.  Committing to a set of time honored principles, having patience and persistence, and then keeping your wits about you when others are losing theirs have always been sound advice when it comes to investing.