by Dan Burrows | March 3, 2014 12:52 pm
The crisis in Crimea touched off the usual fear trade Monday morning, causing stocks to tumble while supposedly safer plays like gold, the dollar and Treasurys gained strength. Against this backdrop, there’s really only one thing for a retail investor to do to profit from this bout of geopolitical instability:
As Warren Buffett said this past weekend, he never buys stocks based on macroeconomic factors. Indeed, the greatest investor of all time made his first purchase just after Pearl Harbor.
Besides, if it really does come down to war (a remote possibility), you don’t want to hold cash. As Buffett said, “If we get into a major war, the value of money goes down, so the last thing you’d want to do is hold money.”
Actively trading panics like the one served up by Russia in Ukraine and Crimea is more likely to cost you money than make it, no matter what you do. If you panic and sell stocks, you almost certainly will not be able to time the market as to when to get back in.
That’ll cost you.
After all, anyone who stood pat during the last market meltdown has been more than made whole by now, while those who panicked and cashed out are, in many cases, still trying to get back to even.
Most importantly, anyone who continued to dollar-cost average into stocks as the market was on its way to losing half its value — like through 401k contributions — bought low. They actually used the panic to their advantage.
So stay the course. Maintain your regular contributions and allocations. And don’t panic. If there’s anything you should do besides sitting on the sidelines, it’s buying stocks of great companies at cheaper prices. A battleship like, say, JPMorgan Chase (JPM) is a solid long-term holding under most circumstances, and it’s now a tiny bit cheaper because of the Ukraine crisis. (No, the bank doesn’t have any branches in Crimea.)
Dividend stocks look a little more attractive too, since falling prices increase the yields on their payouts.
Of course if you go hunting for bargains, you have to worry about falling into a value trap — or a cheap stock or exchange-traded fund that only gets cheaper. The Market Vectors Russia ETF (RSX) plunged 8% at the open, but it’s hard to make a case for Russian stocks no matter how discounted they appear.
True, if you’re trading currencies or commodities, the volatility can be harnessed to work in your favor, but then you’re going up against legions of professionals. Pros are pros because they make money on their trades, and there’s no easier mark than an amateur and his “play” money.
You probably missed the trade by now, anyway. Natural gas prices jumped (Russia is the world’s second largest producer), but the move happened Sunday afternoon. Nat gas prices are already trending downward again. (Furthermore, the frigidly cold winter weather that helped nat gas prices rise off historic lows is coming to an end soon.)
Gold prices were up nearly 2% in early trades, and directionally they looked headed higher, but — again — flip a coin as to whether you can wrangle a profitable trade of out this (including costs for fees and taxes). Another thing to remember is that despite the panic buying stemming from the crisis in Ukraine, gold has been in a downtrend for a long time now. At current gold prices of about $1,346 an ounce, the precious metal still remains 40% below the all-time high hit back in 2011.
It would take a breathtaking act of mass insanity for the U.S. to go to war over Crimea. This, too, shall pass. And when it does, prices will go back to what they were doing before Russia invaded Ukraine.
Often the best move a trader or investor can make is no move at all.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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