Spooked by volatile markets? Time to chicken out

When making portfolio changes in turbulent times, go small or go home.

Christine Benz 1 September, 2011 | 1:51AM

This is supposed to be a sleepy time of year for investors, but August has been anything but tranquil. Amid worsening news about economic growth, employment, and the housing market, 500-point market swings -- mainly to the downside -- have become commonplace.

Such volatile markets can provide fertile ground for value hunters; for example, Warren Buffett's Berkshire Hathaway BRK.A recently initiated a $5 billion stake in beleaguered banking giant Bank of America BAC, negotiating very favourable terms in exchange for the stamp of credibility conferred by Berkshire ownership.

But while Buffett is heeding his own much parroted advice to buy when others are afraid to, that message hasn't resonated with many smaller investors. At an individual investor conference last weekend, several attendees confided to me, with apparent pride, that they'd been out of stocks for a couple of weeks. The data on fund flows also indicate that some investors are feeling defensive.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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