Moneywise24 Personal Finance

I have to be completely honest: I love watching the markets and investing parts of my capital actively, but the current turbulence is driving me crazy:

• Greece is in the news, stocks go down,
• According to analysts stocks are oversold, so they go up,
• Productivity over the last month has increased, nothing happens,
• Volcano erupts, stocks go down,
• And the list goes on …

Currently there is so much emotion and insecurity present on the stock exchanges, that it is really hard to predict what is going to happen next. Whereas optimists claim that this is only temporary, and markets are bound to go up when certain uncertainties have been settled, others claim that this is only the beginning of a double-dip recession, or perhaps worst.

So, I decided to stop taking any new positions for the moment, at least concerning individual stocks and derivatives, and I have implemented the following action plan for the upcoming weeks or months:

1. I will continue to invest small amounts in mutual funds. I invest in these funds with a long-term vision, and they are a mix of stocks in emerging markets as well as Europe and North America, and bonds. Do to the fact that I invest periodically, the average cost price of the mutual fund willl decrease with declining stock markets, meaning I can profit from it on the long run as soon as prices recover… whenever that may be. Additionally, my mutual funds will payout dividends yearly, which further reduces any losses.
2. Current individual positions I will hold on to, maintaining a strict stop-loss. I will not take new positions.
3. The entire portfolio is hedged with short-term, strongly out-of-the money put options on an index. The characteristics of the option make it a very cheap investment, so in case the market recovers there is nothing to lose, since the losses are going to be covered by the profits on my remaining investments. In the event of a sudden price drop, the price of such put options tend to increase in the 3-digit percent range.

Additionally, most of my cash, which I do not need in the upcoming month is parked on a savings account, with an interest rate adequate to cover for inflation, at least.

I am very curious how things tend to develop in the near future. And in fact, it is a fascinating phenomenon how emotion can be the key driver for the stock market.