Panic And Opportunity Walking Hand-in-Hand

MORE FINANCIAL DISTRESS AND GOLDEN GOOSE

NEWS: The markets were on the defensive from the time the opening bell rang and once again experienced a volatile trading session. When the closing bell rang the indices were sitting near the lows of the session and the Dow was off 440 points or 4.1%. The S&P 500 tumbled 57 points or 4.7% and the NASDAQ was the hardest hit with a drop of 109 points or 4.9%.The three major indices along with the NYSE Composite are trading at new multi-year lows. The Russell 2000 is not yet at a new low, but was down 4.8% today.

The big news today was the surge in commodity prices. Gold closed higher by $70 to finish at $850.50/ounce. In after hours trading the yellow metal rallied another $40 and was last trading near $890. The move was the largest point move ever for the gold futures and the biggest one-day percentage move in 9 years. Oil also moved higher, gaining $6.01 and closed at $97.16/barrel. Crude was also higher in after hours trading, closing in on $98.

THE BOTTOMLINE: Today was a day in which it was extremely difficult to find a stock that was higher. All 30 Dow stocks were lower and only 21 of the 500 S&P stocks were able to post a gain. Of the 21 higher stocks, 10 were commodity related only 7 gained over 2%. To put this into perspective, you had a 1 in 25 chance (4%) of picking a winning stock in the S&P 500. You had the same odds of picking a stock in the S&P 500 that was down at least 12%! When you consider the numbers that were on the table today as an investor you have to be happy with taking a minimal loss in your portfolio. So how was that possible? DIVERSIFICATION.

If you had exposure to the gold stocks or commodity ETFs you could have performed much better than the market and helped lessen the blow of a nearly 5% drop in one day. For example, the Market Vectors Gold Miners ETF (GDX) rallied 11.6% and the SPDR Gold ETF (GLD) gained 11.3%. Any way you want to look at it, right now the key to keeping your portfolio from complete obliteration is diversification. On days like this if you would have been heavily invested in financials your portfolio would have been crushed. The same can be said if you were overexposed to energy stocks earlier this month. But a prudent mix of sectors we feel are capable of outperforming the market over the long-term have been our savior. Granted from day to day some of the sectors will underperform the market, but as a whole they have been able to hold up better then the indices, which is the goal in a bear market. Sure I would love to make money every month, but I am also realistic and have been around the market long enough to know there will be bad months and even years. If you are a long-term investor the key is to stick with your core strategy and adapt small portions of it to the current environment.

PANIC AND OPPORTUNITY WALKING HAND-IN-HAND (WHAT TO DO NOW?)

NEWS: When everyone is panicking (and trust me most investors are) it can be the most difficult time in your investor life. That being said, it could ultimately be the best time of your investment career.

THE BOTTOMLINE: When everyone and everything is pointing in one direction, most individuals will go in that direction. Why? Well because if everyone else is doing it, it must be the right thing to do. Or maybe because if they are wrong it will not be as devastating because everyone was doing it. Or could it be peer pressure. Even better yet, lack of knowledge of the situation leads you to believe the majority is correct and therefore you must follow. Whatever the reason may be, it is easier to go with the crowd. Sometimes this will work in your favor, but the majority of the time the masses will be wrong and I believe this is another one of those situations.

The fact the panic levels are at such extreme levels, the CBOE Volatility Index (^VIX) closed the session at the highest level since early 2003, it leads me to believe we are much closer to a low than many believe. As a matter of fact, I am very close to suggesting buying into a couple new positions in sectors I feel are beaten down for no good reason. These will be long-term positions that we must be patient with because I do not know where the bottom is, but as I said; the panic indicators are indicating it is near. This type of move may lead me to be a genius in some eyes or a complete moron in others. But the point is, only time will tell if the potential move will be successful. The reason I am considering buying is twofold. For starters, I play the odds and right now the odds of the stocks and ETFs I am targeting being higher in two years from now is very high and therefore it is imperative to follow the strategy, which is suggesting buying. The second reason is one I have learned from some of the create businesspeople of all-time. When there is panic and irrational behavior by the masses, it is typically a time of opportunity for those individuals that are willing to think outside the box and become the new leaders. This can occur at both the top and bottom, it just so happens we are now at a bottom.

I also want you to think about one more concept. When Apple (AAPL) was at $200 you could not buy because you knew that the valuation was just too high and you were kicking yourself for not pulling the prior at $125. Well now that AAPL is closing in on support at $120 the feelings have changed and shorting the stock is in the discussion. Do not go with the emotion of the moment, but rather look at it in the big picture and realize bargains will arise - but you must act take advantage of them.

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