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Responsible investing is about balance, diversification, liquidity and the long-term. But let us be honest, with Greece on the verge of default, the UK wanting to leave the EU, the Fed juggling with the idea of rate increases and BRICS in disarray for various reasons; it is becoming harder to define sensible investing.
I am also pretty convinced that those with a law degree and a booklet of guidelines would have clients keep all their money in some bank deposit with zero interest rate, or a bullet bond with a negative yield. Playing it safe definitely leads to fewer complaints and probably less work when markets eventually settle. ‘No risk means no return’.
But that is not what we do, because there is another reality which says that the best deals are made at times of crisis. Warren Buffet, the great man himself, was once quoted as saying ‘when everyone else is selling I am buying’. So if you are inclined for some additional risk, your safe assets are… as safe as they currently can be… then how do you play the Greek crisis? I will come to that later.
A simple fact that is often ignored is that investors want to make money. For investors money in itself is pretty useless if it does not generate more money and that is why investors have been scaling down the credit ladder in search of decent yields.
And at time of crisis, when most markets are selling-off, when asset prices are heading towards the bottom; everything starts coming together. Bond yields suddenly look decent and equity prices are once more attractive. But just looking at the red glow coming from CNBC is enough to give Dracula cold feet.
In the next few weeks several investors will lose money as their clumsy attempts at making a quick buck will go haywire. A lucky few will make money, lots of money if they will play the right cards at the right time. Patient and experienced investors will probably do fine in the long-term as current asset prices may be below their fair value.
However, the current crisis is political in nature, and therefore fundamental factors become irrelevant to the final outcome. While I am able to provide a reasonable investment opinion based on market fundamentals, I have no idea what Tsipras, Merkel or Putin have in mind. And these few weeks will be determined more by their actions then by any fundamental economic factor.
Thus on a scale that stretches from gambling to investing the needle has just moved down a few notches. Otherwise, I have a soft spot for large cap European equities. If you are already invested in this asset class, riding the volatility may be a good idea. Investors with extra cash may consider adding to this asset class during the next few days or weeks. Expect large price movements in the short-term, but valuations are attractive for the long-term investor. Always keep in mind that the high risk – high return mantra may work both ways.
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