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By Jason Stipp | 10-17-2012 02:00 PM

One of the Biggest Positives for Investors Now

Those who have left the market because of macro uncertainty are missing out on safer investment opportunities compared with bullish runs, says Sanibel Captiva's Pat Dorsey.

Note: Pat Dorsey is the former director of equity research at Morningstar. He is now the president of Sanibel Captiva Investment Advisers.

Jason Stipp: I'm Jason Stipp for Morningstar. Markets may not like bad news, but they really hate uncertainty, and unfortunately there's no shortage of that in the market today. So, here to help us think about investing in such an uncertain market environment is Pat Dorsey, president of Sanibel Captiva Investment Advisers. Pat, thanks for joining me.

Pat Dorsey: Always happy to be here, Jason.

Stipp: I don't even need to look down at the list, we see them in the headlines all the time: the European situation, the fiscal cliff, China's economy and the hard or the soft landing. There's really no shortage of things that could happen one way or the other, and investors are wondering what the outcomes are going to be. When you think about such an uncertain environment as an investor, you're tempted to take action and try to do something. But what should investors really sit back and think about, when they're faced with a situation where we really just don't know the outcome yet?

Dorsey: I think the first thing to ask yourself is how will this actually affect my portfolio? Because frankly, Greece leaving the euro, if you have a portfolio of small Greek retailers, you should be very frightened. If you have a portfolio of largely multinational large caps it's just not going to be that big a deal. It causes a lot of headlines, but it's probably not going to affect your financial life all that much. So, I think that's the first question is how could this actually affect my life, my portfolio? Not the market.

Stipp: I think one of the things investors worry about as well are valuations. So, when you do have uncertainty, you say that maybe it's not all a bad thing, even though it causes us to wring our hands, in fact when you're wringing your hands, maybe that's the time that you see some bargains in the market.

Dorsey: Yes, I actually think that's one of the biggest investment positives right now, is the amount of uncertainty and worry that's out there. Because dangerous times to invest is when everybody is certain, when everybody is confident about the future. When they're positive that Yahoo! will go to $1,000 a share in 1999, when they're positive that the U.S. home values can never go down, as they were in 2007.

So, it's when you have that kind of confidence that gets extrapolated out into very high valuations, that's when you get a risky investing environment. Whereas amid uncertainty when people are unsure, they are willing to place a discount on assets, well that's when I think investing actually is safer.

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