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Market Update: Stay the Course!

U.S. stock market volatility continues, related to a slowing Chinese economy and falling oil prices.

U.S. stock market volatility continues, related to a slowing Chinese economy and falling oil prices.

Please remember that these bouts of volatility often have nothing to do with the health of the companies in which you’re invested. If you own high-quality stocks with rising earnings projections, nothing that’s happening in China or the commodities markets is going to rapidly turn your stocks into poor investments.

The types of U.S. stocks that are harmed by these goings-on include oil-related stocks and multi-national corporations. I’m sure you understand that falling oil prices will lead to falling profits at oil companies; so clearly, that’s not a good place to invest. And at multi-national corporations, the strong U.S. dollar takes a small bite out of profits from exports.

As a rule of thumb, we do not buy low until significant corporate problems are alleviated, stock prices stabilize, profits begin rising and valuations are cheap. Would you please print this page, grab a scissors, cut out that sentence, and tape it to your computer? Here, I’ll isolate it for you, to make that process easier:

As a rule of thumb, we do not buy low until significant corporate problems are alleviated, stock prices stabilize, profits begin rising, and valuations are cheap.

Thank you for humoring me. I’m trying to help you focus on the types of stocks that are most likely to rise, and least likely to fall. I cannot prevent stocks from falling during market downturns. But I can help you improve your longer-term chances of achieving capital gains by imparting lessons that I’ve learned over the decades.

I see extreme value in U.S. stocks, which leads to markets righting themselves. I also hear the gloom & doom crowd telling you to head for the hills.

In the stock market—and I teach this to my daughters as a basic rule of life—the crowd is always wrong. Always. So perhaps the number-one takeaway in this note is that if everybody is doing or saying one particular thing—such as “sell!”—it may be time to buy.

When the storm is over, institutions will buy all of the Smart Investing in Turbulent Times stocks because these stocks are the cream of the crop, with extreme levels of both growth and value. The very reason I combine those two investment criteria is so that I can find stocks that will appeal to professional investors, who are the people with the buying power to push stock prices up.

Please stay the course.

Crista Huff is the lead analyst of Cabot Undervalued Stocks Advisor, where she combines a strict fundamental methodology with technical analysis, to identify growth and value stocks whose charts are turning bullish.