The Dow is off more than 1% today, continuing a slide that began on the 18th. This is the kind of move that gets people's attention, and the financial media will all start squawking about whether this is the beginning of a major "correction", panic, sell-off, or similarly dramatic scenario.
So what should one do when faced with a day like today? What do prudent and sophisticated investors do here? Well, the one constant truth about the market is that it is made up of many different players with many different opinions and views, and so there are many diverse approaches for a day like today. It is even possible that there is more than one "right" answer.
What DRW Financial does on a day like today is revisit our watch list for potential buying opportunities. Every week, whether the market is up, down, or sideways we refresh a screen of the whole equity market and pare down the 1000s of stocks out there to a few dozen that meet some very simple criteria.
This smaller list features stocks from many different industries, a few different countries, and a small variety of economic profiles. If there are any on the list that meet all of our subjective conditions for "value", we buy them right away. Most, however, are 8/10 or 9/10 matches, with the current market price being the main obstacle. In those cases we set an alert at a target price to let us know when to refresh our analysis.
Today is the kind of day that demands attention to the triggered alerts and a decision on whether to set new alerts at even lower prices or to turn a "watch list" stock into a "buy today!" stock.
This style of evaluation applies mostly to our philosophy around individual equities (stocks) and less so to the more passive (or indexed) portions of client portfolios with a long term desire for exposure to a broad stock index.
So what to do on a day like today? Take a deep breath or two, realize that markets will be volatile, and check your watch lists again to see if there are any new opportunities for value.
***This blog post is not a recommendation or solicitation to buy or sell a security, and is not intended as advice. Please consult an investment professional prior to making investment decisions, and/or thoroughly consider your own risk tolerance and investment objectives before taking action.***
David R Wattenbarger, president of DRW Financial
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