Monday, 8 August 2011

Market volatility - Buy, sell or hold?

With the unprecedented amount of volatility in the market many people are torn about whether to buy more in the market, to sell or just to stay on the sidelines and see what happens.

So far I have stayed on the sidelines though if the market gets down to the levels it was at on Monday / Tuesday last week I will start to buy. My (relatively conservative) picks are
  1. Commonwealth Bank of Australia (ASX:CBA): A bank with almost no international exposure or funding requirements and with a pure exposure to the resilient Australian economy. Based on the current share price of A$47.10 this implies an LTM dividend yield of 6.79% this bank is returning more than most high yield accounts and just reported a record net profit of A$6.4 billion (US$6.7 billion). CBA fell to ~A$43.50 last week which implied a yield of 7.4% and if it gets down to those levels again I will buy in for sure
  2. S&P 500 Index (ASX: IVV): You may wonder why I've put the ASX version of the S&P500 instead of just the regular US verison. The answer is simply the Australian exchange rate (which benefits me as an Australian). The S&P500 in A$ terms is now close to 10 year lows. When the price of the ETF dipped below $110 last week this was the all time low reached by the index. If you have any faith at all in the US economy this is a great buy for Australians. There is an in built protection as well in the exchange rate which is trading well above the long run average of 0.80 (currently 1.04).
Given how strongly the markets are recovering there are not the same options as last week. I may stay on the sidelines a little bit longer until the crazy volatility hits the market again and I can pick up stocks on the cheap.

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