What’s the story with the stock market these days? Many people are concerned about the Chinese stock market. Note that the Chinese stock market is much like going to Las Vegas in the US. It has little to do with the Chinese or world economy overall. I typically ignore what’s happening in Vegas as I do with the Chinese stock market.
I have a friend who is in the business of buying commercial real estate. We often discuss current economic and investment events. He once said, “The way to make money is in real estate.” I said, “The way to make money is to buy low and sell high in anything.” He admitted he couldn’t argue with that.
My point was that whatever investment vehicle you use the basics are the same. But knowing where the bottom and the top are can be difficult to determine, especially if you don’t understand what you are investing in. My friend understands commercial real estate and I understand stocks and bonds. There’s a lot of derivatives that no one understands, even financial advisors who are recommending them. People often get caught in the herd mentally and follow the crowd even if they don’t understand what they are following.
What is more interesting to me than the Chinese stock market is the US market. I don’t mind when the stock market plunges because it’s far easier to find investments that are closer to their bottom range. The last few years finding undervalued securities has been like looking for needles in the hay stack. The needles are there, you just have to work to find them. Now, the hay stack is much smaller and the needles are easier to find.
We came into 2016 with many expecting a volatile year (including me) because of world events, an economy that isn’t following the normal rules (low unemployment and low inflation doesn’t happen often), and the political elections. This can be great news for market timers, but it’s also good news for people like me who look for prices at bargain rates. I won’t be churning stocks this year, but I will look to invest as opportunities become available and selling to take profits on the upswings of the market.
As I indicated in my last post, interest rates will continue to struggle in 2016 even though everyone would love bonds to “get back to normal”. Unfortunately the price gains on bonds that have gone with low rates during the past six years won’t happen again. So bonds are likely to have real capital appreciation near 0% for most of 2016. They will continue to be reliable income producers and will continue to reduce the ups and downs of your overall portfolio though.
The stock market will have erratic fluctuations as every little global turmoil will make the day traders twitch, giving opportunities to buy stocks at good prices, if selected carefully, or sell when prices pop up again.
The economy will probably continue its slow growth until everyone (businesses, investors, and individuals) decides it’s safe to stop squirreling money in cash. How and when we get out of this mess will probably be when the big corporations feel it’s safe to invest in their future again. While the “big boys” think it’s safest to invest in cash during uncertain times, uncertain times will continue until the “big boys” put on “big boy pants” and take the brave step outside into the drizzle.
Until then, look for opportunities during a crazy 2016.
All information provided is general in nature and not meant to be advice for you in particular. I can’t predict the future, the discussion above is my best guess given the current data that’s available to me. If you’d like to know more about how this topic relates to your situation or are looking for a financial planner, contact me at [email protected].
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