|Why the eurozone crisis is good news for investors|
Veteran investor and renowned share tipster Quentin Lumsden argues that, paradoxically, equity investors could stand to benefit significantly from the crisis currently engulfing the single currency area, and from the gloomy macroeconomic situation elsewhere.
Quentin Lumsden has been investing in shares for over 40 years and has worked as a fund manager as well as a respected financial journalist for publications including the Investors Chronicle and the USM Investor. For the past 27 years, Quentin has been running his own investment newsletter, Quantum Leap, picking out the most promising growth shares around to provide two hot tips each month for subscribers. To sign up for a free 90 day trial of Quantum Leap, click here.
There's a lot of doom and gloom around at the moment, and seemingly for good reason. Greece looks well on course to a default; in fact, I think it already has with short-term Greek bonds already yielding over 80%, but no doubt it can get even worse. Meanwhile, Italy's rating has recently been downgraded by Standard & Poor's and several countries' growth forecasts have been slashed by the IMF.
Of course, no one really knows quite what is going to happen. But surely having a whole swathe of European countries in such dire distress, when America is not exactly a poster child for budgetary rectitude, is unambiguous bad news and likely to send shares lower rather than higher?
Well actually, no. I believe now could be an excellent time to buy shares.
No, I’m not mad – or completely stupid. I have been investing in UK and US equities for decades (with considerable success) so I know what I’m talking about. In fact, the average performance of recommendations in my Quantum Leap newsletter has beaten that of the FTSE All-Share for 24 of the last 27 years. (To see details of this performance, click here.)
It may seem completely paradoxical but a careful consideration of the situation suggests to me that the current market presents a great buying opportunity.First of all there is a lot of bad news already priced in. By historical standards, shares in many stock markets look somewhere between cheap and incredibly cheap. They can always get even cheaper, just as expensive shares can get even more expensive, but there is an elastic band effect here. If it takes end-of-the-world scenarios to drive shares even lower then if the world fails to end, as so often happens when doom and gloom reaches exaggerated levels, the potential for a dramatic rebound becomes very great.
To find out which stocks in particular I think offer fantastic value right now, click here.
Secondly, the powers-that-be may react to the threats by taking actions that are paradoxically positive for shares. Indeed, I think this is highly likely. Ask the average voter which he is more worried about, a bit of inflation or losing his job and I doubt if there is a voter on the planet who would claim to be more worried about inflation. This is an easy message for politicians to get. So if the global outlook boils down to a choice between more inflation or recession, our lords and masters are going to choose more inflation every time. What does that mean exactly? It means debasing the currency, printing money, flooding the world with liquidity.
When confidence is low as it is to some extent now, where does that excess liquidity go? The answer, if individuals and companies don’t want to spend more, is that it finds its way into the stock market. This is an encouraging thought for investors. The best, perhaps the only, way for governments and central bankers to fight a financial crisis is to trigger a stock market boom.
But aren’t we on the brink of a major crash?
Well, the fear is that we are on the brink of a rerun of the whole Lehman scenario in Europe. The notoriously tough Germans won’t bail out Greece leading to default and a huge financial crisis will spiral out of control triggering the Armageddon scenario that threatened post-Lehman, and this time no cavalry will come to the rescue.
It’s possible, which is why shares are so low, but I think it is unlikely.
The effect of Lehman’s bankruptcy was to force the US authorities to come to the rescue of all the other bigger entities and even ended up with the big car firms being bailed out. The same would surely happen this time. The Europeans and the world simply cannot let big countries like Spain and Italy default, however huge the debts involved. I don’t know how they will do this but they will. If it takes a trillion or even two trillion euros they will do it.
So what does this suggest? It seems crazy, as crazy as my bullishness in last month’s issue but my guess is that if Greece does formally default, leave the euro or whatever, any weakness in share markets will be short-lived and will be followed by an explosive recovery.
Basically, what I am suggesting is that Greek default will be like a gun pointed at the heads of bankers and politicians in all the world’s great economic powers and it will trigger a massive response including, if necessary, running the money printing presses white hot to put out the fire and flood the world economy with liquidity.
If and when this happens, stock markets could soar.
And there’s another reason why now is the time to invest.
I spend a lot of my time studying individual companies. What I currently see at company after company is fabulous businesses with incredible prospects doing really well. They are everywhere. Throw a pin at the stock market and you will find a company in great shape and full of optimism on the outlook. At quarterly analysts’ conferences the first or second question is invariably “How is business now that the world is sliding into a new recession?” And the answer, time and time again, is that business is great and we don’t see any recession.
There are still quite a few companies out there, even now, when it is supposedly virtually game over for the world economy, that are actually struggling to build sufficient inventory to meet demand. It is almost weird the dichotomy between how companies are doing and how the stock market is reacting.
This can be self-fulfilling. A great company I follow, called Riverbed Technology, missed its sales expectations by, in the CEO’s words, four tenths of a per cent and the shares fell by nearly a quarter.
Of course, if investors are anticipating that kind of reaction in markets they are going to run scared but it really is crazy. Riverbed has great products, a great business model and meets a vital need in a growing marketplace. It will have its time again. I am not saying buy it now (never try to catch a falling knife in stock markets). I am saying that in time we will see that the sell-off was overdone and the next important buy signal for this stock (for which I am watching) will probably be a great opportunity for investors.
Meanwhile there are plenty of companies like Apple, Green Mountain Coffee, Whole Foods and Amazon, which are blowing the lights out with their great results.
To find out which other companies, in the UK and the US, offer great investment opportunities right now, click here.
So how can you take advantage?
Quite simply by buying shares. Such is the state of equities at the moment that there are a whole host of stocks which offer good value right now.
But as ever, individual share prices can go down even in fantastic bull markets, so it’s important to pick the right stocks. What’s more, if you want to beat the market and make truly staggering returns, you have to buy even more selectively.
This can be hard for private investors to do, without sufficient time for research and access to the right information. But help is at hand.
I have been investing in stock markets for over 40 years. During this time I have worked as a fund manager and written for a variety of investment publications including the Investors Chronicle and The USM Investor. For the past 27 years, I have been running my own investment newsletter, Quantum Leap. In this, I offer subscribers like you the benefit of my long experience and provide two new tips each month on the stocks that I believe offer the best growth prospects. Many of these are stocks that I invest in personally, because I really do believe in their potential.
To sign up for a free 90 day trial of Quantum Leap, click here.
But how do you know that my tips are any good?
Just look at this table, showing the overall performance of my tips from each of the 27 years I have been running Quantum Leap. This compares the average performance of tips from each year (to 8th July 2010) with the performance of the FTSE All-Share Index in the same period. As you will see, every year shows a positive performance, and I have outperformed the FTSE All-Share Index (often by a substantial margin) every year since 1988. This is despite some difficult bear markets along the way.
More recently the average gain on all my recommendations from 2010 (as at 1st September 2011) is +74.6%. In comparison, the FTSE All-Share is up just 0.9% on its average 2010 level.
Of course, some of my tips have gone down in value, and others may do in the future, but I hope you'll agree that my overall record is impressive. While past performance is no guarantee of future success, I am continuing to use the same method of stock picking to identify the hottest growth shares right now.
So far in 2011, I am doing well. Despite a very difficult market, with the FTSE All-Share showing a 10% decline, my tips are showing an average gain (as at 1st September) of 3.3%. This may seem unspectacular compared to earlier years, but as the market rebounds I fully expect many of this year's tips to provide some phenomenal returns.
To get more hot tips like this, and see which stocks in particular I'm recommending now, why not join Quantum Leap?
I really do believe that now is a great time to be buying shares. I am coming across so many great, undervalued growth companies at the moment. I will be recommending two of these in particular in the next issue of Quantum Leap, out on Tuesday 4th October, so if you’d like to see what they are, why not sign up now?
I’m so confident that you’ll like my service that I’m happy to offer you a free trial of the newsletter for 90 days. During this time you’ll have full access to the online archive of past newsletters, and receive an e-mail alert as soon as the latest issue comes out. And if during the 90 day period you decide that Quantum Leap is not for you – for whatever reason – you can cancel your subscription and we won’t charge you a thing.
To sign up for a free 90 day trial of Quantum Leap now, click here.
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