Turn Short-Term Fear Into Long-Term Profit

Volatility is way up. Your stomach, tied in knots by the drop in global equities and commodity prices, tells you that. Fear is back.

But like everything else in the financial markets, fear moves in cycles, and that makes this a good time to remind yourself that fear is a short-term phenomenon. It has very little, if anything, to do with the long-term value of a stock or other investment.

Fear doesn't change fundamentals, even if it can powerfully shift how much we're willing to pay for those fundamentals. It is dangerous to investors because it can make them forget long-term economic and market trends and abandon long-term winners at temporary bottoms.

The best antidote for short-term fear is to run down your list of those long-term trends that you believe will turn some stocks into winners. And then use the short-term market overreaction to fear as an opportunity for building positions that will profit from those long-term trends. ...