Dont Write Off the Market Just Yet

Some investors have a different view on stockmarket falls. They see the low stock prices as an opportunity to purchase a bargain.

During times of market turbulence, it is our natural instinct to guard our wealth and distance ourselves from risk. While this reaction is unsurprising, it can also mean losing out on growth opportunities created during volatile times.

Warren Buffet, one of the worlds best professional investors, sees market downturns from another perspective, saying Look at market fluctuations as your friend rather than your foe; profit from folly rather than participate in it.

Generally when we see a lower price for something we want we rush in for a good deal, however it can be quite the opposite with shares. Why is it that we treat shares that have dropped in price with dread? Share prices of a listed company can drop for a number of reasons.

Lately we have seen the share prices of a number of good companies with sound balance sheets be negatively affected due to a rush to sell as a result of the economic crisis.

Despite the uncertain trading environment, fund managers are constantly checking the market for investment opportunities. Many superannuation managers are searching to find stocks in profitable companies with strong balance sheets and returns. For example Australian companies such as household names like David Jones have delivered strong profits after tax and dividends in 2008. However during 2008, David Jones share price fell by more than 30%.

Identifying opportunities
Not all companies will be affected by the global economic crisis in the same way. Some industries are more prone to the economic cycle than others.

Providers of basic goods and services continue on almost unchanged, for example we all need to eat – so food producers arent as affected as much as tourism, motor vehicle sales or luxury goods.

Australias population growth is at a 19 year peak and growing at 1.7% per annum. Australias growing population provides increasing demand for goods and services as people need food, housing, cars, and other staples. Unlike many overseas countries, Australia benefits from two key factors: a high population growth rate and a high demand for accommodation.

Population growth is nearly double that of the US while Germany has negative population growth. In America there is an over-supply of housing while Australia suffers from a lack of supply. The combination of limited housing and a rising population will create growing demand for housing which will support further building and provide opportunities for the building industry.

The value of companies
Many people view businesses with falling share prices with fear, but we need to take a look under the hood of these firms to find out why. Have they borrowed heavily?

What industry are they in? Are they competitive against their peers? Only by answering these questions, can we know if their share value has fallen for valid reasons or if the company is indeed on sale.

When investing, many fund managers look for firms with high and maintainable dividends, strong balance sheets and ongoing cash flow. These companies are more likely to outlive the volatility storm and may give you a greater return when the market moves into the next phase of recovery and
beyond.

Before you consider changing your strategy, you should consult a professional. Having a financial planner and a long-term financial plan can give you confidence to manage the effects of market cycles. With the right advice you can ensure your investments are tailored to your risk profile and time horizon, giving you the certainty of knowing youre doing whats right for you. This article brought to you by a Brisbane business coach who offers sales training courses and a web site design brisbane. Distribution by seo packages. BS1004