Be Prepared for a Bumpy Ride

03/20/2007 12:00 am EST


Keith Fitz-Gerald

Chief Investment Strategist, The Money Map Report

Keith Fitz-Gerald, editor of the Skeptical Investor, thinks the markets may remain jittery for a while, but says this is a good buying opportunity for investors who have the fortitude to ride it out.

As bad as everything felt [a couple of weeks ago, the sell-off] actually wasn't all that terrible when considered against the context of history.

For instance, even though the Dow Jones Industrial Average dropped a staggering 416.02 points [on February 27] and many people thought the sky was falling, the drop was a mere –3.29% which is but a fraction of the –22.61% the Dow fell on October 19, 1987, a day you might remember as "Black Monday."

To put things into perspective, had the market dropped the equivalent percentage last week as it did on Black Monday, the Dow would have cratered by an almost incomprehensible 2,856.18 points!

Without a doubt this will not be the last significant market drop of the year. [We have talked before] about the higher volatility that we were preparing for this year, and I see nothing that changes that expectation. Further, we will continue to experience a combination of broad up and down days until China sorts itself out.

People forget that China is clearly a speculative bubble that makes the run-up here in the late 1990s look like amateur hour. Someday that will change and China will be a sophisticated financial market on par with our own, but until that time it's going to go through growing pains that cause increasingly linked global markets to get indigestion.

As for China itself, every investor needs a China strategy only it shouldn't be in China like most people are investing. Nope, our strategy is investing because of China, which is far safer: we're going to capture China's growth but not the risk that goes with it.

To that end, we're investing in global companies with intellectual property that can't be easily copied but whose services are indispensable to China's growth. (Citi and FedEx are great examples.) Every one of them is globally diversified, so they are not entirely dependent on China, yet will clearly benefit from the growth there.

[So, you should] ignore the fear-based headlines. Now is the time to pile in to the market. Seriously. History shows that shares picked up in a down market almost always dramatically outperform those acquired when the markets are too expensive. In doing so, we're sticking only to those high-yielding dividend stocks with global operations. That way we are getting a two-for-one deal in that we are not only buying in at lower valuations, which automatically improves our odds of success, but we are also getting higher dividends on a per-dollar-invested basis that will really accelerate our returns as the markets again resume their march higher.

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