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United States President Elect Barack Obama takes office in just over a month and many are pinning their hopes for an easing of the financial crisis on his Democratic shoulders.
In fact there are those who are hoping that they will profit from his election and his policies. After all a brief look at Obama’s website tells us that his economic recovery plan ‘will help save or create at least two and a half million jobs, while rebuilding our infrastructure, improving our schools, reducing our dependence on oil, and saving billions of dollars.’
Roughly translated this means that Obama intends to target the following – utilities, road networks, schools, healthcare and technology. As a result some people are keeping a close eye on related stocks and ETF’s (Electronically Traded Funds) in each sector thinking that they may indeed receive a boost.
As it happens certain stocks in construction and construction-related companies have seen an increase recently. And as a result some people are choosing to buy into the engineering and utility sectors while others are pinning their hopes on commodities such as cement, copper and steel.
Whether this is a sure thing and a way to cash in on the crisis is really anybody’s guess. However, it is most likely that those who are starting to buy into the United States infrastructure-related industries will probably have to wait until after January 20th 2009 to see if they have actually been ‘backing the right horse’.
Others hoping to cash in on the crisis are looking carefully at value stocks.
To begin with a value stock is one that is considered to be of intrinsically good value. The value of the stock is measured in terms of its fundamentals. Revenue, profit, cash-flow and capital are just some examples of a company’s fundamentals.
Value stocks are normally those of large established companies that have gone down in price. The companies themselves are perceived to be strong and solid. They are also perceived to be low risk – which, with today’s markets, is very important. Value stocks are often those of companies that pay out dividends.
There are those who believe that the current financial crisis has thrown up huge value opportunities and that there are currently plenty of companies that are looking cheap compared to their actual net asset value. The same can be said of certain value funds – funds which include stocks of ‘solid’ globally traded companies in their portfolio.
And while value investing might appear to be the way to go in today’s economic climate – one question that no-one appears to be able to answer at the moment is whether it is the right time to buy. There is a lot of uncertainty as to whether stocks and funds – even the value plays – have or have not bottomed out.
While some are ‘banking’ on Obama’s infrastructure investment plan and others are looking for value stocks there are still others who are looking to invest outside the United States. For some people Asia is looking particularly attractive right now.
While Asia – like most sensible investments – appears to be an attractive long-term play it could be a bumpy ride in the short term. We should remember that Asia is heavily reliant upon the United States as a market. And if the United States economy is in a recession and consumer spending dries up then it could negatively impact Asia’s growth.
In addition in Asia there is also a considerable amount of volatility brought about by political instability (as evidenced recently in Thailand) as well as economic factors such as rising inflation. And although Asia might look attractive to an investor – as an alternative to investing in the United States and Europe – we must go in with our eyes open. Asia will probably not escape the uncertainty and volatility that is plaguing the rest of the world.
So, for those of us who might want to benefit from the current economic situation there is always the tried and true practice of dollar cost averaging.
As we are already aware this is the practice of spreading investments over a period of time by paying in regular amounts over a fixed period of time. In doing so we are able to guard against volatility by buying more shares when the price is low and less when the price is high.
By spreading our investments over a number of periods we may sacrifice huge gains but – as past experience dictates – we can be reasonably assured of steady growth.
So instead of attempting to cash in on the crisis let’s try to stick with our plan.
After all Your Money Matters!
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