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Business/Finance See other Business/Finance Articles Title: Grab the Dramamine — Volatility is Here to Stay Grab the Dramamine — Volatility is Here to Stay Mike Larson | Friday, March 11, 2016 at 4:20 pm I don’t know about you. But I could sure use some Dramamine after this week. Or even the past 36 hours, for that matter. Down. Up. Down. Up. The stock market pretty much lost its marbles judging by the wild swings in the hours leading up to the European Central Bank’s policy announcement, and the hours after it. Just consider this: Futures on Germany’s benchmark DAX Index jumped from around 9,700 before the news came out to within a whisker of 10,000. Then they plunged a whopping 600 points to 9,400 in just a few hours. Then investors decided things weren’t so bad after all, and futures rallied back just over 400 points to 9,800. The markets are set to get even more volatile. We’ve seen similar crazy volatility in U.S. stocks … government bond markets here and abroad … foreign currencies … and other assets. And it hasn’t just been over the last couple days, either. Many of the most extreme, junkiest of the junk stocks are going completely nuts. The troubled shipping company Eagle Bulk Shipping (EGLE)? It traded for just over 40 cents in mid-February. Then it skyrocketed to as high as three-and-a-half bucks in just the first couple days of March. After that, it reversed course and plunged all the way back to a buck-thirty. The steel firm AK Steel Holding (AKS)? It traded for around $1.60 in January. Then in early March it went ballistic, tagging $4.20. That’s a 163% gain in just a few weeks. Then you have a whole slew of beaten-down energy names. Whiting Petroleum (WLL)? From around $3.40 to $9 in the blink of an eye. Seadrill Ltd (SDRL)? From around $1.70 to $7.50, then back to $3.50 in a span of two weeks. Chesapeake Energy (CHK)? From $2.50 to as much as $5.70 then back to $4.80. “We’re in a whole new market environment — one marked by increased volatility, increased uncertainty, and increasing turmoil.” What does it mean? It confirms we’re in a whole new market environment. One marked by increased volatility, increased uncertainty, and increasing turmoil — on both the way down AND the way up. It smacks very much of other down cycles in credit, where the “crisis/policy response/crisis” process would play out over and over again. My favorite coping strategies? Keep a higher percentage of your portfolio in cash and cash-like investments. Own some crisis insurance investments like gold. Use sensible hedges. Also stick with stocks that offer generous yields — but make sure the underlying companies can actually afford to pay those yields. Focus on sectors with less economic sensitivity. Buy non-stock investments in fixed-income and currency markets to diversify your portfolio. It’s a crazy environment out there. But if you stick to that game plan, I think you’ll come out ahead in this uncertain time. Any thoughts on that set of recommendations? Do they align with what you’re doing in your portfolio? Or do you have other strategies you’re using? Any particular stocks, ETFs, or funds that you like here in an era of heightened volatility? Let me know. If the last 36 hours have taught us anything, as I noted, it’s that volatility is here to stay. The European Central Bank’s actions helped launch a big rally, which was followed by a big selloff, which was then followed by a big rally — leaving investors with their heads spinning. So what do you think of the market action? Post Comment Private Reply Ignore Thread
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