Uncertain Markets Require A Plan Of Action

Sep. 11, 2011 7:18 PM ETVIXM, TLT, WMT, XOM, T
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Contributor Since 2011

As avid investors for years, our focus is on value and conservative investment ideas. We strongly believe in American capitalism, and understand today's unprecedented times, Never before have politics and investing been so closely linked. As avid tea party members, we know the frustration most Americans are feeling, but also realize that opportunities abound if one knows where to look. We believe to be successful, investors have to fully understand risk and reward and what makes the markets move. Technical analysis combined with a fundamental approach have served us well over the last 20 plus years, and we hope to share our insights with others who are serious about their financial future.

Lately the markets have been all over the place as evidenced by the steep rise in the volatility index(VIX) and the stampede into US treasuries(TLT).  It is times like these that fortunes can be made but also a recipe for disaster for those who ignore the obvious.  Trying to gauge where the markets will be a week from now, or even months from now, is an exercise is futility and is not something we would recommend trying to attempt.

The markets absolutely hate uncertainty, and in the past few months we have seen plenty of news and events that leave investors scratching their heads.  Washington has been a key reason why the markets are so unsettling, and when combined with world events, it's easy to see why we are where we are today.  

We believe the good news is that many companies are trading at very reasonable multiples, and some of the bad news about fears of a recession is already be priced into many stocks.  We would caution however that now is the time when it pays to be patient when trying to buy stocks.  We have been in the "sell the rally" mode for several months now, and it may continue until we see the VIX get below 30 and subside a bit.  Cutting losers and taking some profits off the table may be prudent given the markets temperature these days depending on several factors.

A few things that investors can do in times like this is to understand their tolerance for risk and also their time frame for a particular investment.  If you are risk adverse, consider using fairly tight stop loss orders(5-15%) on a portion of your investments.  Use an appropriate chart interval based on your objective and price target.  A 60 minute chart can look a whole lot different than a yearly chart, and understanding this can be a valuable tool.

Consider buying consumer staples, stocks with a low PE multiple, and companies that are paying a reasonable dividends in order to weather the storm.  AT&T (T) has a yield of over 6% and trades at about 11 times next years earnings.  Walmart (WMT) has been holding steady at 11 times forward earnings and also has a 2.8% current yield, while ExxonMobil (XOM) trades at 8x forward earnings and yields 2.6%.  These are just a few of the names we like in a highly volatile market.

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