Markets are volatile. This is an inescapable fact. At times, they are less so, but nonetheless, a certain level of volatility is always present. But what is one to do when they become uncomfortably so? Investors have a clear choice: either fall victim to the volatility or make volatility your friend to generate wealth.
In this column, I will discuss one of the many strategies we use at The Arora Report to take advantage of volatility.
The strategy is simple: buy good companies when they dip on bad news that is likely to have a temporary effect in the short-term, but either no impact or a positive impact in the long-term. Good companies almost always recover from temporary setbacks. A refinement to the strategy is to watch for the news that the stock market perceives as bad in the short-term, but in reality is good news for the long-term. This strategy is evergreen, and I have been successfully using it for over 30 years.
Let’s start with an example using Walgreen WAG. Walgreen is a ubiquitous drugstore chain familiar to most Americans. I had identified Walgreen as a buy in the spring of 2012 as a beneficiary of Obamacare. The premise was simple: As more Americans gain access to health insurance, the more they will visit drugstores, such as Walgreen. Walgreen profits not only from increasing pharmaceutical sales, but also from selling everyday necessities from the front of the store.
Typically, drugstore chains put pharmacies at the back of the store and high-margin, non-pharmaceutical items in the front of the store in the hope that consumers will purchase these high-margin items as they walk by them to the pharmacy...Read more at MarketWatch