08 Mar The Upside Of Market Volatility
2018 ended with a dramatic shift in market sentiment. With all of the volatility in the stock market right now, how can investors tame it and make the most of it?
The last few months have seen oil prices plummet and stock market sell-offs due in part to regulatory and geopolitical issues such as trade wars and interest rate hikes. As a result, there’s been a surge in volatility, and experts warn that this could go on for a while.
This time is no different; when the market has been up for so long it goes into correction, which is what is happening right now. Let’s take a look at the opportunities and what the experts would do in this type of market environment.
What Would Savvy Investors Do?
Looking back at your investment in 2018, would you have done anything differently to weather the type of volatility we are seeing right now? In an uncertain time like this, talking to experts or looking at what they are doing can prove beneficial.
Legendary investor Warren Buffet offered some words of advice last year to stakeholders in his annual letter that still apply today. He told investors to do two things when stocks are falling: stay put and buy at a bargain.
What that signifies is that regardless of market conditions, you shouldn’t stop investing but rather tweak your strategy to align with market shifts. Savvy investors understand that investing consistently even in a down market will ultimately lead to success and long-term growth.
Opportunities In The Downturn
Volatilities have their upside even in the toughest of times. The last big oil glut exemplifies how investors can profit from down markets if they stay put.
Oil dipped below $26 per barrel in early 2016 which led to the demise of several oil companies. When oil prices headed towards $30 per barrel, many operators couldn’t compete because of high operating costs.
Some companies found themselves over-leveraged and struggled to pay their bills. Unable to meet their debt obligations, many were forced to shut down or sell their assets, often at below market price to continue operating.
Thousands of oil and gas professionals lost their jobs. However, with advances in shale technology, many oil companies in the U.S were able to weather the storm and emerged unscathed. The success of shale technologies was such that even when oil prices were trading below $20 per barrel, American producers were still able to produce and make profits.
Investors who were proactive and invested in oil stocks during the downturn reaped huge returns and emerged stronger. Low lifting costs and years of technological advances helped shale companies to stay open, pay down their debts, and disburse profits, despite market turmoil.
Shale technologies created new opportunities for investors in the oil and gas industry, and for the first time in two decades U.S. crude oil production surpassed that of Saudi Arabia, according to 2018 report from EIA. The bottom line is that while market conditions will change, there’s always a section of the economy that will continue to thrive regardless of what is happening in the market.
Savvy investors understand that every market has its challenges and aren’t afraid to take advantage of market swings, but they do so with care and thoughtfulness.
2019 has a lot in store for investors; even though experts warn of further volatility and uncertainty ahead, research has shown that investing in a down market can be good for overall portfolio growth, even more so when investors are building their portfolios. So seek out expert opinions and invest in those assets (ie; Alternatives) that can thrive in a volatile market, opportunity abounds for those who seek it.