World finances on the mend or round the bend?
With Greece in a last scramble with its creditors and the rest of the European Union over its bailout conditions and continued membership in the Euro Zone, the mood in world financial markets have been uncertain to say the least.
China has now added to the uncertainty as the Chinese market over the last couple of months shed nearly 30% with fears of further downturns due to margin trading. As the Chinese investors are lending money to buy shares in their government’s latest bid to diversify the economy and create wealth through investing into equity, the strategy has created a problem. When the markets go down losses are multiplied through leveraged positions.
In the current climate where investors seek confidence these latest happenings have dented investor confidence and created uncertainty in a time where investors need reassurance by the truckload. Around the world investors are turning to what is known as a “risk off” scenario or strategy in seeking to minimize capital losses by investing in so-called safe haven assets such as US treasuries, German Bunds or Swiss Bonds. These assets are considered to be safe from world turmoil and are seen as the go-to assets in times of uncertainty.
This reaction to risk is nothing new and should not scare the long-term investor in any way. Warren Buffet, the sage of Omaha, is often quoted as saying that you should be greedy when everyone is fearful and fearful when everyone is greedy. In short you see times of uncertainty as opportunity rather than a time for going into hiding.
As the world looks to stand with its hands in its hair, we as investors must remain on the lookout for new investment opportunities as we go into these uncertain times. But how do we as investors make use of such opportunities?
Firstly, you need the assistance of a financial planning professional who can assist you in making decisions when emotion can override your rational thinking and get in the way of making sound decisions.
Secondly, it requires discipline on the behalf of the investor where profits have to be taken when markets are up and buy into positions when markets are down.
If there is one thing we can be certain about, it is that markets will go up and markets will go down; but we have very little idea of when and by how much. We can not change these facts but we can prepare ourselves for these eventualities by taking opportunities as they present themselves.
We can not predict what global financial markets will do or what direction they will take but that should not be the question we should be asking. We should be asking what should we do next to maximise opportunity to gain and create wealth. In summary we should look at these happenings in Greece and China as opportunities rather than doom and gloom. As the sage of Omaha also likes to say: “it is not timing the market but time in the market that makes you money.”