The markets were not happy on Monday. The Dow Jones Industrial Average dropped by more than 800 points, the NASDAQ Composite index was down 4% and the S&P 500 lost 3%. That might sound like a disaster for those exposed to such dramatic falls, but as Dr. Sebastian Kaulitzki from Alpha Plus Capital tells us, it may be time to stay calm and start trading again!
Alpha Plus: Well, over the last few years we haven’t seen too many financial disasters and both professionals and amateurs could really get to feel confident about what they were doing. Recently though, there have been signs that all isn’t completely well in our global economy. Shares are tumbling around the world as investors suddenly doubt whether funds are really as healthy as had been believed. Are we about to see a full on collapse?
Dr. Kaulitzki: It wouldn’t be the first time that experts had predicted a bear market or even a big crash – but it’s not happened, is it? People have got carried away and ignored the experts who have been warning us for years.
Dr. Kaulitzki: It could be, but the problem with all these experts is that they really aren’t very good at their job! Economists are often brought up in similar environments which means there’s a risk of group think occurring where everyone starts believing the same things. If they are not challenged by their peers or superiors, it can be difficult for them to adapt their models even when they are wrong. We believe that you should really only ever trust an expert if they have made money themselves in the past – people who rely on other experts often lose everything and we want to help them avoid such a fate.
Dr. Kaulitzki : No, definitely not! As mentioned above, predictions of financial armageddon have been around for a long time and they haven’t happened – why should this time be any different? There are always warning signs that the market is getting overheated and we would probably be worried if we couldn’t see such signals.
Alpha Plus: So what’s changed recently? Why are you sounding the alarm now?
Dr. Kaulitzki: These signs of overheating have intensified in recent weeks with economists saying that interest rates should rise but actually keeping them low, governments pumping up spending and even companies stockpiling goods. Although none of these things are individually enough to cause a disaster, when you put them all together it builds into a very worrying picture.
Dr. Kaulitzki: Our company has been helping investors navigate choppy waters for decades and we can help you to stay safe. We work with the world’s top companies and institutions and we’ve seen this all before.
Alpha Plus: So should I stop investing? Sell my shares now while they’re only worth a little bit less than they were last week?
Dr. Kaulitzki: No! If you need to take some of your money out of the market, always do so gradually so you don’t startle the markets. We advise withdrawing around 5% from your portfolio every week for a couple of months to ensure you get all of your returns while also avoiding any large dips in price.
Alpha Plus: Okay, that does sound like a good plan but I am still worried. What should I do next?
Dr. Kaulitzki: If this really is the beginning of a major market downturn, there are actually lots of opportunities for you to make money even if your overall portfolio goes down in value. We recommend allocating some of your spare cash towards any companies that could suffer the biggest losses during the crisis, as their shares often become very cheap once the market starts to recover. You can also invest in companies that specialize in making products for these sorts of markets – they will make a killing when people need them3.