How to Play the Annual European Meltdown
The market got drubbed again Monday, par for the course thus far in May that's seen losses in 7 out of the first 10 trading days. The S&P 500 has now lost over 4% for the month. At the same time, WTI crude oil has plunged over 10% and gold has lost all of its gains for the year, making four-and-a-half-month lows.
Forget JP Morgan (JPM), global markets are falling for the same reason they collapsed in the Spring last year and in 2010: Europe is on the verge of chaos.
Unemployment rates in the PIIGS nations --Portugal, Italy, Ireland, Greece, and Spain-- are approaching or exceeding the 24.9% level that America saw at the very bottom of the Great Depression. Only in a dictatorship could austerity be imposed on societies where more than half the people under 25 years-old are unemployed.
The political spectrum on the Continent is becoming a circle. The far Left and Right find a common ground on the idea that any elected official in favor of the status quo needs to be drummed out of office.
All of which you probably knew. The question is: What can you do to defend your portfolio? Here's a three-step personal finance Marshall Plan:
1. Sell Until You Can Sleep
If you woke up this morning afraid to even look at your portfolio, you own too much stock. If you're already kicking yourself for giving away all the money you made in the first quarter, don't grit your teeth and "hope" it gets better.
In short, if you can't handle what we've seen so far, you're going to be making very bad decisions if and when prices go lower. Don't feel like you're gambling with your money, as it will cause you to make terrible decisions later.
2. Keep Perspective
Major indices remain higher for the year. Europe has never actually left the cusp of total economic and political collapse; it has just seen flare-ups of optimism from time to time. Things are bad but not unprecedented.
If the advice of Step 1 doesn't apply to you, your best bet is to look for places to invest as opposed to storming for the exits.
3. If You're Going to Buy, Do So "In Scale"
You don't get a medal for being the person who picked the absolute bottom in stocks. It's not macho to put all your money into stocks at precisely one time and "let it ride." It's stupid.
Make a list of stocks you want to own and the price at which you want to own them. Then consider the level at which you'd absolutely sell. In between those two points pick away at the long side. It's not "dollar-cost averaging;" it's investing with a plan.
One final choice from "off the menu": you don't have to do anything at all. As always, not trading is both a viable and sometimes optimal strategy.
How are you handling the renewed Euro crisis? Are you buying, selling, or holding your stocks? Let us know in the comment section below or visit us on Facebook.
