When the markets give you lemons, it's time to make lemonade

When there is fear in the markets, there are opportunities. It's time to take a proactive approach to managing your investments. 

At this point, the markets seem irrational. Although there are headwinds in the economy, there are also many positives.  Employment is strong and housing is appreciating. I'm not saying that everything is sunshine and unicorns, but a great recession like drop is highly unlikely. With good reason, I would argue that the markets are oversold and now is a good time to seek out underpriced asset classes.

Rebalance

I am an advocate of a diversified portfolio based on an investor’s risk tolerance and goals.  As soon as you set up your investments to mirror your target asset allocation, your allocation will be off target after the first market close. Over time, the better performing asset classes will become a greater percentage of your portfolio. Hence, your asset allocation will be off balance. Rebalancing your portfolio back to the target means that you are taking money out of asset classes that have performed well and placing that accumulation into asset classes that have underperformed.  This seems counter intuitive, but you are buying low and selling high.  When the markets crash, there is an opportunity to buy low and sell high by rebalancing your portfolio.

Oil

Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful.” When oil is mentioned, investors shudder.  If someone sold you an item at a third of the cost it was selling for just a year ago, you might think you were getting a good deal.  This is exactly what is happening with oil. Fears of slowing economies in India and China combined with increased production in U.S. oil depressed oil prices to extreme recent lows. This is Economics 101: Supply and Demand.  Economics tells us that oil prices will rise to equilibrium once oil companies fail and oil producing countries produce less. At this point, it takes an iron stomach to invest in oil, but an investment in a commodity needed across the world depressed to a third of recent historic prices may just be a prudent move.

International Stocks

Meanwhile, stocks have been depressed in Europe for some time.  After two back-to-back recessions, unemployment is inching down and consumer confidence is rising.  The red-headed step child that has been causing all the problems, Greece, has been sent to its room with an ugly, but working bailout.  With European stocks depressed for so long, value does exist.

Undervalued Domestic Stocks

U.S. Stocks continue to get crushed as I write this article. The main culprits of the decline are low oil prices and a slowing in China and abroad.  However, low oil prices help companies that use oil to transport or produce goods by decreasing costs. Therefore, helping the bottom line.  There are multiple domestic companies reaping the benefits of low oil prices while conducting business within the United States. Although they are not directly affected by the slowing global economy, their stock prices have still declined with the broad sell off. With U.S. consumers still spending at a healthy rate, the depressed stock prices of these companies present an opportunity for value.

Investing is emotional, time-consuming and sometimes frustrating.  Even in a depressed market, there are opportunities to profit. Investors, turn that frown upside down and take action. When the markets give you lemons, make lemonade!