Managing investments in turbulent times

In a recent CBC radio commentary, I talked about the nervousness of the stock markets and some of the negative forces that are causing concern to investors. As so often happens, good news for the economy is bad news for stock markets.

Some examples:
· The drop in September unemployment figures in Canada and the U.S. reawakened concerns about inflation and higher interest rates.
· Profit warnings from companies such as Dell, Intel, Home Depot and Apple in the U.S. and Air Canada here at home are contributing to the malaise.
· Then there’s the on-going energy problem, which won’t go away.

It all adds up to the kind of climate that stock markets hate. There’s too much uncertainty around, and that breeds anxiety. When investors are nervous, they tend to be sellers, not buyers, and that drives down share prices.

I then went out of my way to stress that didn’t necessarily mean we were heading for a bear market. But the reality is that stock markets are very unsettled right now and things could go either way.

As a result, I suggested that listeners should take the time to carefully review their investment portfolios. If there arsome profits that should be taken, do so, I advised — just don’t lose sight of the tax consequences if the assets are not in a registered plan.

Angry reaction
The day after that commentary aired I received an angry e-mail from a listener who said I had told him to sell all his mutual funds in the run-up to Y2K. That had cost him a bundle and now here I was telling him to do the same thing again. His tone was angry and I think if we had been in the same room he would have punched me in the nose.

I sent him a copy of the CBC transcript, noting that mutual funds were never mentioned – the topic was the stock market. I pointed out that the advice I offered was simply to review one’s stock portfolio and take profits where indicated.

I mentioned that I had never been caught up in the Y2K panic and that my advice all through the piece was that while I anticipated some market volatility, I did not expect anything like the disaster that some people were predicting. And I stressed that it is not my style, nor my philosophy, to ever tell people to “sell everything”. The markets are just too unpredictable.

None of it mattered. An exchange of e-mails, which became more heated in tone, left the gentleman still convinced he had heard me say something I had not said or even implied.

Constant fine-tuning
I relate all this because in times of market uncertainty, nervous investors will sometimes exaggerate what they think they read or hear and become convinced they must do something drastic. Well, drastic action is rarely a solution to anything.

Careful portfolio management on an on-going basis is the key to investing success. That why we take profits at times on stocks that have soared and cut losses on others when they don’t live up to expectations.

We should always be fine-tuning our investments based on how the securities have performed, the future prospects for each stock, and the general state of the economy and financial markets.

That hardly seems like extreme advice to me. I’d call it plain old-fashioned common sense.

Adapted from the Internet Wealth Builder, a weekly e-mail newsletter edited by Gordon Pape. For information on how to subscribe, visit Gordon Pape’s Web site at