When there’s a broad market selloff, as we’ve seen in recent months, it can be a good time to buy high-quality companies. Those with lots of cash flow, good management and a product or service that people use every day. When we come out of the cycle, which we will eventually, those are the names that will likely recover the most.
That said, I don’t think we will be out of this extreme volatility until we see some relief in inflation. Until we get to a point at which it appears that central banks are done with the rate-climbing scenario, it will be tough sledding for investors.In times like these, there are always a few investors who give up and say, ‘I’m out; sell everything and go to cash.’ As an advisor, you want to try to ensure your clients aren’t one of those people.
It’s a good idea to remind investors that, with stocks, they’re often buying pieces of economically appreciating assets. Our job as money managers, over time, is to find companies that we think we can buy for less than their intrinsic value. Investors generally have a “love-hate” relationship with bad news. They hate unpleasant news about the economy and financial markets, but they love to read about it and simply cannot look away. A combination of psychological factors drive the way investors process negative news on the financial market.
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