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Your Greatest Asset In Today’s Market

The events unfolding in Japan over the past several days are of tragically epic proportions. The human and economic tolls are both staggering and impossible to fully put into words. Our hearts goes out to all those suffering.

The situation in Japan is changing rapidly, and rarely for the better. The images we’re seeing of the total and utter destruction of whole villages, including most of the people in those areas, are harrowing.

But, and I say this with all due respect and well-wishing to those suffering in Japan, we are an investing service, and as such we will concentrate on what it all might meant to ordinary investors like you and I.

Unsentimental capitalism

The share market’s focus has moved from the earthquake and tsunami to the nuclear threat, and with good reason.

Markets are like that. They are totally unsentimental, and totally without conscience. Where there is a dollar to be made, or a dollar to be saved, the market will hunt down those opportunities. Call it capitalism if you like.

Although the death toll from the natural disaster is massive, looking like it will be around the 12,000 mark, that would pale into insignificance compared to a full-scale nuclear meltdown.

I’m no expert here, and even from what I’ve seen and read, the nuclear experts themselves don’t know how events at the stricken Fukushima Daiichi nuclear complex will unfold in the critical days ahead.

Expect the unexpected

Market panics, and sharp movements in individual shares are nothing new.

As investors, we should always expect the unexpected. The problem is, after 2 solid years of nothing but markets rising, many investors have seemingly forgotten that shares can go down too.

So, what do you do now, given the S&P/ASX 200 is now down over 9% in the past month, close enough to the technical definition of an official correction (defined as a 10% fall in the market)?

If only I knew. If there’s one thing I’ve learnt from 22 years of investing it’s that timing the market is impossible.

Risk off

Where just a few short weeks ago investors were piling into high-risk penny share exploration stocks, they are heading to the exits faster than they can say “I wish I sold a few week’s ago.”

Just ask shareholders in popular companies like Peninsula Minerals (ASX: PEN), Kagara (ASX: KZL) and Berkeley Resources (ASX: BKY) how they feel today compared to a month ago. Sick, I’m guessing, especially if they are using highly leveraged CFDs.

David Joy at Columbia Management summed up current investor sentiment on Bloomberg…

The risks have risen and you have to be mindful of them…

In addition to (the Japanese disaster), there’s ongoing housing weakness in the U.S. and a fear premium built into the oil market. That’s why you have to hedge your bets.

Your greatest asset

The time to buy shares is generally at times of maximum pessimism.

The time of maximum pessimism generally occurs at the time of maximum uncertainty.

The uncertainty-level right now is high. As such, gut feel says it’s a time to be buying.

Your greatest asset in times like these is liquidity. Cash, and ample liquidity, give you the ability to act freely rather than having your hands tied at the worst possible time.

Have existing positions earmarked for a quick sale if you want to raise cash to be defensive or for new buying opportunities.

So, even if you are fully invested, you have ample opportunity at the ready. As the scout motto goes, be prepared.

Never forget why we’re here

If you have that liquidity, that cash sitting on the sidelines, you’re in a good position.

That, sadly, is far more than can be said about the poor people of Japan.

Amongst all this capitalism-in-action, we must never forget the human toll, and we must hope the nuclear threat comes to a swift and containable conclusion.

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