Risk Free Returns May Be Better Than Stocks Right Now
Personally we don't like the market at the moment for the simple reason that you can bet there are more funds and financial institutions out there that are hiding very bad news. It's how the business works.
And as inflation is not likely to go away (regardless of what the recent inflation figures suggest) we also really like The Leeds Building Society inflation proof bond which pays 3% above the current RPI so it is currently 6.8% (3.8% + 3%) - More details on the inflation bond
If You Know What You're Buying Be On High Alert
When panic grips the stockmarkets there are always great bargains to be had but the secret is to know exactly what you're buying and not just do so because prices 'look cheap' in relation to where they were 1-5 days ago.
For example, a bad move would be to buy ABC shares because they've fallen 25% and therefore must be cheap. Instead, a shrewder move is to buy shares in companies that you understand well, or in sectors where you do business or work.
Perhaps for example you work in the Oil services and support sector and see first hand the money and investment pouring in. Looking to selectively buy companies that have been dragged down in the short term might offer great returns.
We have done this ourselves in the last few days (see page 3 of the Newsletter), starting to buy into a company where we have a good understanding of the overall sector. Does this mean we'll be right, of course not but it does put the probabilities much farther in our favour.
Another tip when stock prices go mad is to have your buy orders already in the market to take advantage of those moves when they slam a stock say 10% in a matter of minutes before it recovers in the same amount of time.
This actually happened with Marchex (discussed on page 3) when the stock got slammed down to $8.50 very quickly but only those with limit orders already placed in the market would have got filled - we however didn't buy any because like everyone else we don't always practice what we preach :).
Summary
We stick by our January forecast that UK and US stocks are likely to finish the year where they started, and the way to make money in the markets for 2007 continues to be looking to get involved at the extremes, ie buy when the world looks like it's about to collapse and sell if/when the market moves to new highs.
So far this year this strategy has worked very well but we do admit that at present far more fear has gripped market participants over the last month. For this reason we prefer to generally watch and see how the dust settles.
One thing you can most probably bet on is the Fed to cut rates (or do something to help Wall St out) and when they do, expect one of those massive 1 and 2 day rallies. If you can time your buys right (or even half right) there should be a lot of quick money to be made. The question then will be should rallies be used to short stocks and stock indexes?
