If the timing of tapering by the US Federal Reserve wasn’t enough to concern investors, we can now toss into the mix the troubles in Syria too. And if you add the depreciating rupee, the unloved rupiah and the unwanted ringgit into the equation, you have a powerful cocktail of concerns that could keep almost anyone awake for nights on end.
The response by market traders to any uncertainty is always quite predictable. When uncertainty abounds, traders invariably ditch riskier investments for safer assets, even though the returns for the latter may be unattractive.
However, before investors follow short-term traders into safe havens such as gold and currencies such as the Swiss franc and the Japanese yen, they should try to weigh up the probability of how the unpalatable events could affect your investments.
For instance, how likely could a reduction in the amount of money that America will pump into the global economy affect companies such as SIA Engineering (SGX: S59), Thai Beverage (SGX: Y92) and ComfortDelGro (SGX: C52). Could an escalation of the conflict in Syria adversely affect the performance of SingTel (SGX: Z74) and Jardine Cycle & Carriage (SGX: C07).
If you believe they might then try to quantify how these events could hit the economics of these companies, if at all. Next decide whether they could have a long-term impact on the profitability of these companies.
More often than not, you may find that it is unlikely to affect the well-being of these companies over the long term. In which case, any dip in the market could be a good opportunity to acquire more shares rather than to ditch what you already own.
On BBC World this morning, I told viewers that traders are likely to dump shares in the short term – not because I think they should but because that is the way they typically react.
In 1810, Nathan Rothschild reportedly said that investors should buy on the sound of cannons. The modern day equivalent would be to buy on bad news. That is the steely attitude that we should be adopting when we invest too. So, the best time to buy shares is now.
It may seem that we are getting more than our fair share of things to worry about at the moment. But for us long-term investors, the time to worry is when there is nothing to worry about. That is the time when shares are expensive, which is not the case right now.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.