As the war of worlds between Chinese officials and US politicians continues, the UK is squeezed in the middle so the value of our holdings could swiftly plummet.
Well, if you are invested in equities or in the FTSE 100 for the long term, there are ways to get around volatility. Here s how it works.
Lesson one
Star investor Neil Woodford recentlysaid that you should not tie your savings to global indexes.
When markets fall, headlines focus on the impact on well-known equity indices. But this doesnt tell the full story. Truly actively managed funds look nothing like the index this means their performance can, and should, be very different, he argued.
This means that there are ways to outperform the market even when professional investors are panicking. How do you do that?
You must look further down the value chain, choosingthe stocks of smaller companies that boats solid financials and enticing growth prospects. Consider the recent performances ofSafestyle (+43% year to date), McBride (+89% year to date)and RPC Group (+30% year to date), for instance.
Take Betfair, too, a betting firm that is merging with Paddy Power.
Pockets of value
Lesson two: do not abide by short-term value forming your judgement upon a fully fledged approach based solely either on fundamentals or on macroeconomic trends. Be smart: combine the two.
Yet if you do not understand some of basic financials and metrics included in the financial statements of most companies, you should not invest a penny in the stock markets.
Certain companies included in theFTSE 100, such as British American Tobacco, are working hard to fend off the threat posed by sluggish growth rates in the global economy. Others, such as BP, have reacted swiftly to tough trading conditions.Even Glencorehas realised that is no longer business as usual. Other miners, includingRio Tinto, may take heed.
This is not to say that you should buy the shares of all these companies, but I think itd be safe to allocate part of your savings to BP at 340p a share, while betting thatBritish American Tobacco will quickly deleverage its balance sheet makes a lot of sense to me.
Lady Luck? Nah
In short, volatility presents a truly unique opportunity to buy shares that are grossly undervalued but you must do your homework, learning along the way.
Incidentally, have you notice one of the most important Bloomberg headlines of the day?
Well, Chinas figures have never been very reliable, in my view, so while its true that its growth rate may have become less appealing, I didnt buy into its growth projections back in 2009, and I am not particularly worried today.
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Alessandro Pasettihas no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makesus better investors.