Volatility Leaves Many Underinvested Again
Based primarily on fears of a U.S. default, markets have been extremely volatile over the past few weeks, which undoubtedly has left many underinvested again. If you want to improve your odds of navigating through the next crisis:
Think in probabilities
Develop an IF, THEN system
Monitor the big picture
Remain highly flexible
The Fed Matters In A Big Way
A good portion of the buying enthusiasm this week came as markets began to realize that still tepid global growth will make it hard for central bankers to back off the monetary stimulus faucets. From Bloomberg:
U.S. stocks rose, giving the Standard & Poor's 500 Index its best weekly gain since July, as results from Google Inc. topped estimates and speculation grew that the Federal Reserve will delay cutting monetary stimulus.
Crisis Low Followed By 87 Point S&P 500 Gain
The recent "debt ceiling crisis" presents us with an excellent real world example of how to integrate the concepts above into your investment approach. By taking our example to this Friday's close, we can also integrate a probabilistic outlook for the markets.