News Flash: Commodities are volatile.
Gold, copper or iron ore it's all the same. The price of each fell hard in recent weeks but it doesn't matter. Because it's simple, if you don't like volatility, don't buy into resource stocks.
When prices fall dramatically (it's a matter of when, not how) don't rush out in a panic and sell all of your stock holdings. It's a recipe for disaster.
Instead, use the volatility to your advantage. Buy shares when they're down, not up. For example, you could buy any one of these five stocks at a cheaper price today than one-month ago and they're still the same companies they were 28 days ago.
For example, Rio Tinto Limited (ASX: RIO) fell along with the price of iron ore, it was worse hit than its more diversified rival BHP Billiton Limited (ASX: BHP) because of its reliance on the steelmaking ingredient. In the midst of the commodities selloff, both companies' CEOs took to the public stage and played down fears of a price collapse, dismissing concerns over a slowdown in demand for steel from Asia. They said it was temporary and, sure enough, they were right.
Also in the limelight were gold miners, who until recently had healthy upwards trending share prices. However, if you checked your profit and loss account today after purchasing shares in miner Silver Lake Resources Limited (ASX: SLR) only one month ago, you would be unpleasantly surprised by the 33% drop in value. That drop has come on the back of relatively little news, making an investment in Silver Lake Resources today a better one than a month ago.
Despite the huge demand for oil and gas, the share prices of two promising mid-cap stocks primed for growth have also retracted. Both Senex Energy Ltd (ASX: SXY) and Drillsearch Energy Limited (ASX: DLS) have operations in our countries busiest onshore oil and gas basin, the Cooper Basin. In addition each company is busy growing record profits on the back of healthy production increases. In the last month, shares are down 3% and 5%, respectively.
Foolish takeaway
"A study of economics usually reveals that the best time to buy anything was last year." – Soccerwidow.com
Now is a better time than a month ago to invest in resource stocks. The industry will continue to be volatile and no one can accurately predict short-term fluctuations in price. But, as an investor, we can use the market's sentiment to make intelligent decisions.