China Evergrande Group. Ever heard of it? Unless you live in China...or invest actively in Chinese markets...chances are the answer is “No,” at least not until the last few weeks, explains Mike Larson, editor of Safe Money Report.
But the company is a massive player in the Chinese real-estate market, one that aggressively expanded into all kinds of businesses in recent years. Now, it's reeling under the weight of more than $300 billion in debt and other liabilities. Some of its bonds are trading for just 25 cents on the dollar, while its shares have plunged a whopping 85% year-to-date.
Source: Yahoo Finance
American and other world markets were content to mostly ignore the story...for a while. But this week served as a wake-up call. The weakness that was previously confined to more economically sensitive sectors spread like wildfire Monday, and the Dow dropped more than 900 points before bouncing a bit into the close.
We’ll see how the markets react in the wake of the latest Federal Reserve meeting over the next few days. That means...
1. Keeping a reserve of CASH on hand to take advantage of corrections and selloffs. Most mutual funds hold very little cash, often a couple of percentage points of fund assets. That’s great when markets are in full-on bull market mode. Not so great when they aren’t.
If you always seek to be 100% invested, and don’t take it upon yourself to keep some cash in reserve, shocks like this can catch you flat-footed. You won’t just lose more money. You also won’t have any cash in reserve to take advantage of the cheaper prices pullbacks give you!
2. Targeting other assets besides just stocks. Do you know what did just fine even as the Dow was plunging 900-plus points? Gold. The SPDR Gold Shares (GLD) ROSE 0.7% on Monday. For its part, the iShares 20+ Year Treasury Bond ETF (TLT) popped 1.2%.
Both are vehicles I’ve targeted in different ways. Why? Because I ALWAYS recommend to maintain a margin of safety.
3. Don’t forget to take profits...and buy into stocks with built-in advantages. Outside of a few favored sectors, the market has been struggling with weaker breadth behind the scenes since this summer. That’s one reason why I’ve been recommending to take some profits off the table over the past few months.
It’s also why I will keep focusing on stocks with high Weiss Ratings, more-generous yields, and other attributes that give investors like you that critical margin of safety.
I don’t know when the next “Evergrande Selloff” might come. Or if a Fed surprise might knock stocks for a loop.
Safe Money Report focuses on these kinds of stocks, which include names in the consumer staples, food and beverage, retail, and healthcare sectors. Visit Safe Money Report here.
