4 Sure-Fire Ways to Protect Your Portfolio During Volatile Times


'Euro Falls As A Grexit Looms Despite Hope'
- Forbes

'China Stock Market Crashing and Burning Before Our Eyes' 
- Huffington Post 

'U.S. stocks suffer worst drop of 2015 on Greek default fears.'
- CNN Money

'The crash tearing apart China's stock market is freaking out investors around the world.'
- CNN Money

As an investor, these are not the types of headlines you like to see as you open your morning news. A mild sweat might adorn your forehead as you realise you have potentially lost a chunk of your investment while you were sleeping. Your heart may start to race a little as you fumble for your smartphone. You need to check in with your broker.

Stop! Relax. You are a value investor. You are ok. You do not buy into hype and sensationalised market reporting, remember?

Take a deep breath and let us go through how you can protect your portfolio and keep your sanity in check when the media is reporting market meltdowns.

1. Take a long term view

Market movements are inevitable. Stock prices will rise and fall on a daily basis. And the daily, weekly or even monthly fluctuations are not indicative of a trend you need to consider.

As Warren Buffett stated, "Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."

Markets will suffer economic pressures. Markets will crash. But stocks have always come out of crises, and if you pick sound stocks at a margin of safety, you need not worry about short-performance spikes or drops. Over the long term, the returns are positive.

2. Use a checklist before making any changes

Having a checklist by your side simplifies the task of managing your portfolio considerably. It eliminates the probability of you taking detrimental measures due to fear or panic.

It is truly the only way to know whether you are making decisions for the benefit of your portfolio or simply because of fear. If you are content with the outcome of your checklist, you are ready to sell. If not, I suggest you hold on a little longer. The markets will stabilise. All you have to do is give it some time to recover.

I use a checklist to ensure I am making educated moves at all times. Create your own checklist by using mine as an example. My checklist can be found in the following article, The Value Investing Checklist to Effective Portfolio Management.

3. Keep changes to a minimum

Always stick to your asset allocation model and strategy. Reacting to news headlines leads to unnecessary activity that will drag down your return rate and could potentially kill your strategy.

Do not go overboard. Your checklist might suggest you are selling for the right reasons, but selling more than five to ten percent of your portfolio is not going to do you any good. Slight changes, on the other hand, are more than welcome. Making slight changes can systematically strengthen your portfolio and will keep you from making unfavourable decisions.

4. Buy as if the markets are closing tomorrow and not opening for five years

Invest in stocks that you want to hold for ten years. Ideally, your goal should be to buy stocks that you can hold for decades. A value investing approach will give your investments sufficient time to live up to the benefits of having a strong allocation strategy.

Apply yourself by doing the necessary research to ensure you pick the best value stocks. If you doubt your stock picking ability, subscribe to an intelligent stock picking and portfolio management tool to pick the best opportunities for you.

In conclusion

Let's face it, keeping composure when the media shouts "sell, sell, sell!" is a daunting challenge. The headlines are unnerving, but keep a level-headed mindset. It will pay off handsomely over the long-term. You do not have to be smarter than the rest. You have to be more disciplined than the rest.


Topics: 3D Value Investing


3D Value Investing: Triangulating The Best Investment Targets

3D Value Investing uncovers the best businesses for investment, the fair value of those businesses and the best times to buy in and sell out. This approach to long-term investing results in higher returns with lower risk.

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