Risk Forecasts Have Increased – So, Too, Have Opportunities

Tuesday, May 18, 2010

Risk one-upmanship is upon us. The possible dire consequences from the European Union’s (EU’s) Greek troubles now have moved from widespread contagion, itself a stretch, to forecasts of the EU’s dissolution and the Euro’s abandonment. Goldman Sachs calls this outlook, “ridiculous,” saying the Euro’s decline actually may be at or near the bottom (“O’Neill Says Idea of Euro Breakup Within a Year Is ‘Ridiculous’,” Bloomberg BusinessWeek, By Mark Deen and Sara Eisen, May 17). Nevertheless,…

…  just as investors can get carried away with upside possibilities and build increasingly optimistic, but unrealistic, scenarios, so, too, can they lose perspective amidst pessimism on the downside. Risk possibilities move from the plausible to the fantastic, finally foreseeing Armageddon just around the corner.

The result is a period of discomfort – and opportunity.

Reports highlight investors’ moving away from “risky” investments, like US stocks (e.g., see “Investors’ Retreat May Bode Ill for StocksThe Wall Street Journal, by Kelly Evans, May 17).  The benefit to investors not willing to play that game is that the selling creates attractive pricing that offers good gain opportunities – particularly because investors, as a whole, hadn’t yet become optimistic and enthusiastic about US stocks.

So… Don’t let the recent forecasts of Europe crumbling alter your investment plan. In fact, this period of risk forecast increases provides good investment opportunities.

Coming up: Today (Tuesday, May 18), the last of the Dow Jones Industrial Average companies report earnings: Hewlett-Packard (HPQ), Home Depot (HD) and Wal-Mart (WMT). We will be taking a look at what the 30 company earnings reports mean to us.

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John Tobey on Seeking Alpha

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May 2010