With the first-quarter drawing to a close in just a few more days, so far it has been a maddening three months for stock investors.
The markets are spooked by uncertainty about the timing of Fed rate hikes, a rising dollar and slumping corporate profits. The result has been sharp up-and-down price swings so far this year, but there are ways of coping with increased volatility
Just by getting more selective with your investments you can sleep easier at night, and still have the potential to outperform the Dow Joneses. And I’ll get to the details in just a moment.
First, as discussed last week in Money and Markets, volatility has been on the rise for stocks all year, triggering rapid price swings both up-and-down
One of the biggest worries contributing to this instability is slumping corporate profits, as I pointed out a week ago, and the main villain here is the strong U.S. dollar. A recent article in the Wall Street Journal picked up on this theme.
The buck is up 12 percent so far this year alone against the euro, and has soared 27 percent over the past 12 months. This is a dilemma for large, multinational companies in the Dow and S&P 500 that do big business in Europe, because their year-over-year earnings comparisons are getting a lot tougher.
How to cope with stock market madness
An investment environment like this — an aging bull market with volatility on the rise — places a premium on stock selection, and active oversight of your portfolio. You must be nimble, and may need to shift your asset allocation to take some defensive measures.
For instance, seek out only the highest-quality stocks, and be willing to trim positions and take profits as opportunities arise. Above all, you do not have to be fully invested all the time.
Remember, being willing to hold extra cash is an asset allocation decision too; and a smart one to make in unsettled markets.
Perhaps the most important action to take right now is to be ultra-selective. Focus only on the highest quality investments; stocks and ETFs you can be confident about holding even in turbulent times.
Set high standards and if a stock doesn’t measure up, don’t buy it.
And if you own it already, consider selling or at least use a protective stop.
My standard for measuring quality is our Weiss Stock Ratings model, an invaluable tool for uncovering the best quality stocks in the market, and guiding you into the right stocks at the right time. And the proof is in the pudding.
Late last year Dr. Martin Weiss personally introduced a unique new investment strategy — based on our award-wining stock ratings — built to outperform in turbulent markets.
Martin’s Ultimate Portfolio is specifically designed to provide the ultimate in profit potential AND safety, when markets get volatile.
And so far this year, even with all the up-and-down price swings in stocks, Martin’s Ultimate Portfolio is well ahead of the game; up 4.1 percent year-to-date (through March 23), compared with a gain of just 2.9 percent for the S&P 500.
This may not sound like much of a margin of victory … until you realize that Martin’s Ultimate Portfolio has achieved these gains while holding an average cash position of 44 percent all year!
If you were to make a true apples-to-apples comparison by measuring these results on the same 100 percent-invested basis, the results would be:
S&P 500: +2.9 percent vs. Martin’s Ultimate Portfolio: +7.2 percent!
The key to this outperformance is superior stock selection, and having the patience and discipline to hold extra cash, when market conditions warrant.
By focusing exclusively on extreme high quality companies, and buying only those that merit top Weiss Stock Ratings, it’s possible to keep a substantial cash cushion and still outperform, even in turbulent markets.