The stock market's best friend

What's next for the stock market? Ask someone who cares.

a woman

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What's next for the stock market? Ask someone who cares, writes The Motley Fool.

We've been popular people this last couple of weeks.

We're not quite in the Rock Star category (we can't sing, don't do drugs, and are already older than 27) but let's just say we've been in demand.

Under our Australian Financial Services Licence (AFSL), The Motley Fool Australia is authorised to provide general financial product advice.

Spot the bubble

If it's specifics you're after – like I'm a 56-year-old engineer with $200,000 in super and want to know if I should sell all my shares and buy gold instead – we can't help you.

We can however give our readers our thoughts on gold. And Europe. And the USA. Keep reading…

An old saying goes there's always a bubble somewhere.

Not so long ago, it was the Aussie dollar (AUD). How do we know it was in a bubble? Just count the number of "Millionaire Forex" trading ads and seminars popping up all over the web.

We've seen them. You've seen them. It's just that when the Mum's and Dad's start getting targeted, you know the easy money has already been made.

We're talking about the investment bankers at companies like Macquarie Group (ASX: MQG), Goldman Sachs, Commonwealth Bank (ASX: CBA) and Westpac Banking Corporation (ASX: WBC), for example.

They have the intellectual, financial and computing power to blow amateur traders out of the water. And that's before margin calls come a knocking, stopping you out at exactly the wrong time, leaving you nursing uncomfortably large losses.

We advise you to leave the short-term, high-risk trading to the professionals. There's plenty of money to be made elsewhere.

Buy gold now?

Gold just could be the bubble of the moment. But just because it might be today's bubble, doesn't mean it can't go higher than $1,800. Frankly, we're surprised it has gotten that high.

When it comes to gold, we're happy to stay on the sidelines. Nothing ventured, nothing gained, but also nothing lost. And if investors have learnt anything from the extreme market volatility of the past couple of weeks, it's that protection of capital is paramount.

When everything, except gold and U.S treasuries, gets hammered like it did last week, there really is no place to hide. You just have to bunker down, stop looking at your portfolio, and get through it.

What next for markets?

If you made it to the other side, well done. But who knows if this is 'the other side'.

Sure, the stock market has stabilised, and the Aussie dollar has bounced back up to over $1.05.

Results from larger companies including Brambles (ASX: BXB), Woodside Petroleum (ASX: WPL), CSL (ASX: CSL), Boral (ASX: BLD), Fletcher Building (ASX: FBU) and Westfield Group (ASX: WDC) have been largely in line with expectations.

Results from smaller companies like Mermaid Marine (ASX: MRM), Forge Group (ASX: FGE), SAI Global (ASX: SAI) and ARB Corporation (ASX: ARP) have been extremely well received.

To top things off, we've even had a hostile bid for Foster's (ASX: FGL).

You won't read this in the newspapers

Crisis? What crisis?

As of writing, the S&P/ASX 200 index is up a whopping 12% from its lows of just last week. You won't read about that on the front page of the fear-mongering newspapers.

Still, the fear index, the VIX, remains at elevated levels. In 'normal' times, it trades around 20. After spiking to 48 last week, it still sits around 30. Fear has abated, but markets are still nervous.

We asked The Motley Fool's Investment Analyst Dean Morel for his thoughts.

Last week, in the midst of the chaos, panic and fear, Dean advised readers to buy shares, in a measured way, honing in on companies that you want to hold for the long term.

Your stock market friend

Has anything changed? Over to Dean…

"Volatility is like Christmas. Come Boxing Day, you can start looking forward to it again. Volatility is our friend. It lets us buy companies lower than their true value.

Whilst the media and day traders do care about short-term events, like the recent market volatility, it is mere noise to me.

Volatility is like a little alarm that makes me alert to possible bargains. For long term investors every minute spent thinking about what is likely to occur next in financial markets is a wasted minute.

I have no edge in predicting the near term direction of markets, and no special insights to offer on the macroeconomic picture.

However, it seems obvious that Europe and the U.S. are in a world of pain, and that it will take many years for them to extract themselves from their quagmire.

I believe economic and business cycles are mirrored in market cycles. While the world's major developed economies struggle, the share market will do likewise. As I said last week, we are in a secular bear market that is likely to see its sideways trajectory continue for at least a few more years.

As to whether we are on 'the other side', I don't care. Come rain, hail or shine, I'll just stick to my tried, tested and successful investment strategy of buying good companies on the cheap."

Your greatest investing challenge

Thanks Dean.

But next time, tell us what you really think.

Markets have always zigged and zagged. Your greatest challenge, as an investor, is to keep your emotions in check, especially during times of heightened volatility.

As Warren Buffett said "To invest successfully does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework."

We're glad Dean is on the same page. He'll be back next week with another Stock On His Radar. We've had a sneak preview, and all we can say is "we're tempted".


Free Report: Read This Before The Next Market Crash

Of the companies mentioned, Bruce Jackson has an interest in CBA, WBC and FGL. Motley Fool staff and freelancers, including Dean Morel, may have interests in any of the stocks mentioned in this report. These interests can change at any time. The Motley Fool has a calm disclosure policy.

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