The Best Investment Strategy Right Now

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

The stock market just doesn’t look very healthy and we could be in for a meaningful period of correcting stock prices. Of course, the market’s been needing a major consolidation after such a strong run last year. I suppose that the good earnings news we’re now seeing from big companies is really just a meeting of expectations from the market’s point of view. Regardless, the unemployment data later this week will make or break the market’s near-term trading action.

A lot of very attractive businesses have seen their stock prices pull back quite a bit in recent weeks. This is particularly the case in precious metal stocks and U.S.-listed Chinese stocks. I reiterate my view that these two sectors of the market are the most attractive for speculators this year. Right now, I’m working on generating lists of junior mining companies with good prospects for the future.

But I’m still not enthusiastic about being a new buyer of equities at this time. The broader market’s been tired for a couple of months and January’s trading action was just plain awful. On a weekly basis, we seem to be getting very mixed messages within the global economy. One week, the price of crude oil goes up because of new hope in Asian demand; the next week, trading action in the dollar mitigates the previous action. The same thing is happening in the stock market and commodities. All this choppy trading action is a reflection of a marketplace that is very unsure of itself and it’s why a lot of individual investors aren’t participating much at all.

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In my mind, in the absence of a definable trend in capital markets, the best strategy for an investor is to do nothing. Why speculate unless all the fundamentals are there to create a higher probability of investment success?

The stock market’s current trading action clearly isn’t well defined at all. The market seems just as likely to go one way or the other based on the news of the day. This makes it very difficult for speculators to develop a market view, and very difficult to increase the odds of investment success.

So, the best investment strategy now seems to be to do nothing. There are still a lot of fourth-quarter earnings numbers to keep up on. But there’s really no need to be buying anything in this market at this time. The risk versus return ratio just isn’t attractive enough yet to be spending money.