Last week our questions regarding the military buildup by the USA around Iran got answered. Bombs were falling and missiles flying all over the Middle East as Iran, Israel and the US started shooting. Poor tourists and citizens of the UAE, Qatar, Bahrain and the other countries in the area, were inconvenienced and frightened as their flights got cancelled and their hotels bombed. We saw the price of oil shoot up; and we looked on as share prices fell on Monday and Tuesday, bounced back somewhat on Wednesday, and fell again on Thursday. The short-term result will be higher oil, inflation and investment uncertainty, but those issues should calm down as soon as we become used to this new conflict. It was also a shock to the rand, which weakened very quickly.
As always, for an investor with cash, these indiscriminate drops in share prices create buying opportunities, while those investors who are fully invested must just keep looking at the horizon and not worry. If you are invested in companies selling a service or product crucial to consumers, the price of their shares will bounce back once the fear gets washed out of the market. These situations are actually why it is important to follow a strategy of taking some profits as your investments outperform expectations over time, building up some cash reserves, and waiting for your favourite investments to become cheaper again.
We have to remember that this is a midterm election year in the USA and President Trump will do his utmost to please the voters before November. It is very likely that the Iran conflict will be sorted out way before then and markets will return to normal. As a longer-term investor the current volatility should not stop you from investing in quality companies. If you want to wait for the right time to invest, you will probably miss the recovery and get no benefit from the recent drawdown. If you are a nervous investor, at least phase your cash into your chosen investment over the next few weeks.