In the midst of this global stock market meltdown, you’re probably wondering whether you should do nothing or something.
Gurus, pundits, and advisors usually recommend doing nothing in times of extreme volatility and uncertainty. Their argument is that the future is unpredictable, the market will bounce back, and staying fully invested has proven to be the best bet for the long haul.
However – like so many investment rules and advice – it is inadvisable to think they’re applicable to all investors, regardless of their age and the market conditions.
Let me share with you an example: Yesterday, my son who is soon off to college, asked me if I thought it was a good time for him to buy stock in Apple Inc. (AAPL) – which has come back from $134 to around $96. He’s a big believer in the company’s management team and its culture.
Now Apple could very well go lower if we’re only at the beginning of a global recession and market correction, but the critical point is that my son has a long timeframe ahead of him. Trying to time or guess the bottom for Apple isn’t really important.
But for me, the timeframe is much shorter, so I need to be much more sensitive to price and market conditions. A value entry price point is critical to put the probabilities of success on my side.
Patience Is Key
I think having patience is the key. An investor who is my son’s age shouldn’t be in a hurry to buy Apple, or any stock for that matter. Having some cash, no matter how little, is a major asset because you can take advantage of very sharp selloffs in markets at home and abroad.
Just think of the massive selloffs during the past 15 years: the tech bubble and the global financial crisis. Buying anywhere near the bottom would’ve produced extraordinary gains.
And don’t forget that countries and sectors can get beat up really badly, even as stock markets and economic conditions are robust. Take Brazil, for example. I encourage you to keep an eye on the long-term chart of the iShares MSCI Brazil Capped ETF (EWZ).
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When Brazil was a basket case in 2002, the Brazil Capped ETF traded at just $5.80. Six years later it was trading at $99.20.
The global financial crisis crushed it back to $34, but it snapped back in six months to $75. EWZ now trades at just $19.
Given his 50-plus year timeframe, I would rather my son buy Brazil than Apple.
Why Not Go Nuclear?
But I might have an even better idea than Brazil: uranium.
The Global X Uranium ETF (URA) was launched with great fanfare in late 2010 at a price of $103. Over the last five years it has lost 89% of its value. In the last year it’s been beat down 41%, and now trades at just $13.50.
But beneath the gloom and doom of the nuclear power sector, I see some daylight.
Despite the Fukushima disaster, which in many ways was tied to old technology, Japan is reigniting its nuclear power program. Projections show that nuclear power will still account for about 25% of its electricity in 2030. Germany is rethinking its hasty decision to pull back on the technology, and closing its nine nuclear reactors.
And China, faced with terrible pollution problems caused by coal, is doubling down on nuclear power, and building 23 reactors right now, with another 172 in the pipeline. Some think all this will boost global uranium demand as much as 30% to 40% by 2030.
Meanwhile, uranium stockpiles are diminishing and because of prices production of uranium has been at a standstill.
My key takeaway here is to be aware of the linkage between value and time. Put both on your side and your chances of success at the tricky game of investing go way up.
Which is the right call right now – Apple, Brazil, or uranium? Only time will tell.
Have the courage of your convictions, put time on your side, and all will be well.