Don’t lose your head (and your shirt) in the sell-off

2 mins. to read
Don’t lose your head (and your shirt) in the sell-off
Master Investor Magazine

Master Investor Magazine 60

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Veteran markets man Mark Watson Mitchell offers some thoughts on the coronavirus-induced panic-selling.

With Saudi Arabia and Russia playing roulette with their oil production levels, like last man standing in the big boy’s game, it is totally understandable that oil barrel prices are collapsing by 20% or more.

Whether such low price-levels get passed on to the consumers is another question. One would have thought, even expected, industry to be pleased with such hopes.

However, I do not think that those big boys will keep the prices low for too long, before they slash production levels and charge prices back up again.

Is China still a buyer?

With its manufacturing sectors being hit for six by the coronavirus, the question to ask is: will China be as big a buyer of oil as it has been in recent years? We already knew that its exports were a lot lower and that its imports were also fewer.

Furthermore, as other Asian and European countries close regions through effective quarantine, they too may well endure industrial slowdown. So, will oil demand slacken with them too?

But it will not last for too long – demand for rationed products will create new markets and producers will find a way to satisfy their customers, especially so in loo rolls!

A view on the market – buy, sell or hold?

Investing is always about taking a view – whether you are bullish or bearish or you just decide to just watch for a while – they are all conscious decisions.

As I said a couple of weeks ago, in markets like those that we are currently enduring, the best thing to do is stand to one side and watch.

Tempted by the market?

If you feel very tempted to raid your bank accounts and put your spare cash into the market while it is so weak, then whatever you do may I please advise you to be cautious.

Do not get sucked in by the ultra-high price-earnings-ratio stocks, or those where the hope is very high of fortunes to come.

Instead, just look out for good old stalwarts, where their strong balance sheets, market leadership and brand names will carry them through the financial hiccups that will ensue this epidemic.

Been here before – recover to new highs

I have seen many market collapses in my time, when prices have fallen through the floor, where international crises have blown up and economies have been threatened.

You just never know when they are going to happen, or what their root causes really are as they implode.

However, one fact remains throughout: it always bounces back and eventually strides out for new highs in both prices and market indices.

Just think of the action when you go swimming, you take a plastic football and then push it down to your feet, it tries to get free, you pressure it down again – then you move your feet, it explodes rapidly above the surface, before falling back below the surface, bouncing up again but a lot lower in height, before then breaking its fall back to the surface level.

A lengthy analogy but, hopefully, descriptive of how markets work.

“Guvnor – lend us a fiver (million that is) – I have a market to buy!”

There are some incredibly attractive stock prices out there, but it is so important to stand back, take a good look, then weigh up the pros and cons before you make your move.

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