Last month’s Wall of Worry that we commented on grew into a mountain this past week as the Volatility Index (also known as the Fear Gauge) spiked to its highest level in 13 months. A mere three months ago, the index was at a four month low. Investor emotions change very quickly.
As investors and advisors, we search out investment opportunities that have the potential to give us a return on our money in exchange for the risk we assume in doing so. It makes sense that in our research we try to identify those opportunities that have the highest possible return in relation to that risk.
What is puzzling to us is that investors will panic sell individual companies (stocks) that are profitable, are historically fairly valued, hold record amounts of cash on their books, and as a majority are beating analyst earnings estimates? Further puzzling is that these sellers are moving to bank acounts earning zero, or to very low yielding government securities that the ratings agencies are threatening to downgrade! Does that make sense?
If we do our analysis and invest in quality with the apprpriate risk exposure, panic selling should not concern us in regard to our long term plans. As one very successful investor puts it, “Sell on Euphoria, buy on Panic!”