How investors can make the most of all this uncertainty

As if the global coronavirus pandemic isn’t creating enough uncertainty in the stock markets, United States President Donald Trump and Chinese President Xi Jinping are back at it.

It seems ages ago — though my calendar assures me it’s less than 6 months — that investors’ biggest concerns revolved around the US–China trade dispute.

On one week, Donald Trump and Xi Jinping would make nice, and stock market indexes around the world would rally.

The next week, the two leaders would promptly backflip, indicating a range of sticking points remained to reach a trade deal. And global stock market indexes would fall.

In renewed sparring, the US ordered China to shutter its consulate in Houston, Texas last week. China swiftly responded, directing the US to close its consulate in Chengdu.

Investors didn’t like it.

In the US, the S&P 500 Index (INDEXSP: INX) fell 0.6% on Friday. All the major European indexes lost ground too, with Germany’s DAX PERFORMANCE-INDEX (INDEXDB: DAX) dropping 2%.

ASX bucks the losing trend

The news also saw ASX futures trading 0.5% lower. But futures traders look to have gotten that one wrong.

At the time of writing, Aussie investors appear to have shrugged off the gloom, with the All Ordinaries Index (ASX: XAO) up 0.2% in afternoon trading.

That tells you most of this new turmoil is already priced into the markets, which tend to be forward-looking.

That doesn’t mean the markets always get it right. But what the numbers are telling you is that there are plenty of great opportunities on the ASX right now.

No one can predict with any accuracy how US–Chinese relations will progress. And no one can tell you when and how the world will conquer COVID-19. Though rest assured, we will beat this virus together!

But that uncertainty doesn’t mean you should sell your stock holdings and remain paralysed on the sidelines.

Far from it…

Buy your favourite stocks

Since bottoming out on 23 March, the All Ords is up an eye-popping 35%. Yes, that’s still down 15.1% from its 20 February all-time high. But a remarkable recovery nonetheless.

According to corporate advisory firm Vesparum Capital, we largely have retail investors like you to thank for those gains. Vesparum says retail investors have timed their entry back into the stock markets well. At least so far…

Now I’m not suggesting you try to time the highs and lows here. Leave that to those day traders with cast iron stomachs and hefty credit lines.

Rather, to follow the lead of Collins St Value Fund principal Michael Goldberg, you should buy your favourite stocks. 

“I think what differentiates us is that we manage a concentrated portfolio of our favourite ideas,” Goldberg is quoted as saying in the Australian Financial Review (AFR).

Collins St Value Fund returned 13.5% in 2019–2020. During that same time, the S&P/ASX 200 Index (ASX: XJO) lost 7.7%. That’s an impressive 21.2% outperformance.

But you have to be willing to get outside your comfort zone. As quoted in the AFR article, Goldberg says:

Over the last 12 months it’s been exceptional and 70 per cent of the stocks we’ve owned over the last year went up, in a market that was down more than 7 per cent. We’re not getting it right every time, but we’re spending all the time we can to get that informational advantage and ensure we’re not taking risks we don’t understand. … Sometimes doing those things that are a little bit uncomfortable, because no one else likes to be uncomfortable, can generate massive opportunity. It’s there if you go and grab it, but it’s not always comfortable to go grab it.

The fund focuses on a small number of stocks, holding an average of 10 to 15 stocks. 

As far as your own stock portfolio goes, you may choose to hold a few more. But keeping in mind the importance of diversification to help reduce risks, you probably don’t want to own any less.

Foolish takeaway

Trump and Xi may rattle their sabres. And the coronavirus may linger for longer than we’d like. But every day brings new opportunities to potentially make money in the stock markets.

Don’t let the uncertainty scare you away.

More reading

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• Why these brokers are telling you to buy the crashing IAG share price today
• 2 ASX shares to buy as alternatives to the pitiful returns from a term deposit
• 2 top ASX growth shares to buy for long-term growth
• Is it time to dollar-cost average into ASX shares?

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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