Good Investments in a Bear Market?

[Hubbs]

So, I have several thousand dollars that's spent the past year just sitting in a savings account, not doing much of anything. I know it's generally a bad time for the economy, but I also know that there are certain markets that do better in bear markets than in bull. I'm trying to identify a few areas in which I might be able to invest a bit and see if I can do more with my money than earn .000001% interest.

What's best to look at in a recession (or, for you technicality Nazis out there, near-recession)? Are there any industries you're focusing on as the Dow tumbles downhill?

[PeterMP]

So, I have several thousand dollars that's spent the past year just sitting in a savings account, not doing much of anything. I know it's generally a bad time for the economy, but I also know that there are certain markets that do better in bear markets than in bull. I'm trying to identify a few areas in which I might be able to invest a bit and see if I can do more with my money than earn .000001% interest.

What's best to look at in a recession (or, for you technicality Nazis out there, near-recession)? Are there any industries you're focusing on as the Dow tumbles downhill?

My excess money is sitting in CDs for now (if anybody has any better suggestions, I'd be happy to take it.)

[Gator Bait]

My excess money is sitting in CDs for now (if anybody has any better suggestions, I'd be happy to take it.)

I've got much better advice....invest in some mutual funds for cheap while the market is suffering....make a lot of money in a few years

CD interest rates suck now days!

[Monte51Coleman]

Please don't take offense, but...

if you are coming here for financial advice you should keep your money in that savings account or better yet open an ING account. They are currently paying 3%.

[lanceman_1]

Gold... It almost always goes up.

[PeterMP]

I've got much better advice....invest in some mutual funds for cheap while the market is suffering....make a lot of money in a few years

CD interest rates suck now days!

1. Long term you might be right, but I generally believe it is difficult for the average person to time the bottom (or top), and I don't think anybody is clear that this is the bottom. IMO it makes more sense to hold onto the money until it is clear we've reached the bottom and even things have started to come up, and then buy.

2. I do want to have some ability to access the money in some sort of reasonable time frame. Even mutual funds at this time seem to me might be a 5 year or more investment. 6 month to 1 year CDs are better.

[Hubbs]

Please don't take offense, but...

if you are coming here for financial advice you should keep your money in that savings account or better yet open an ING account. They are currently paying 3%.

Ha, I'm not looking for specific stock tips - I'm just trying to come up with as long of a list as possible before narrowing down my research.

[artmonkforHOF]

make a run in the stock market but stick with companies that sell the following:

Guns/Ammo

Tobacco

Alcohol

On a serious note, try ING with their 3% or 3.5% interest. Its not much, but there are no fees to suck away at your savings. The other good thing about an ING account is that money can be moved quickly if you are in a pinch with no penalties for taking out large portions of your savings.

[China]

Find things to invest in that people will use in a tight economy. Things that people always need. Things like food, healthcare, etc. But you still have to pick and choose. Don't pick luxury food items such as Starbucks. Or luxury healthcare items such as Viagra. Go more basic.

[PleaseBlitz]

Find things to invest in that people will use in a tight economy. Things that people always need. Things like food, healthcare, etc. But you still have to pick and choose. Don't pick luxury food items such as Starbucks. Or luxury healthcare items such as Viagra. Go more basic.

Like Procter and Gamble and Kraft foods.

Personally, i'd go with with ExxonMobil and Consol Energy.

[JMS]

So, I have several thousand dollars that's spent the past year just sitting in a savings account, not doing much of anything. I know it's generally a bad time for the economy, but I also know that there are certain markets that do better in bear markets than in bull. I'm trying to identify a few areas in which I might be able to invest a bit and see if I can do more with my money than earn .000001% interest.

What's best to look at in a recession (or, for you technicality Nazis out there, near-recession)? Are there any industries you're focusing on as the Dow tumbles downhill?

commodities... problem is everybody bought commodities about a year ago so they are quite high even today and unless you think the comming recession will be long and deep ( gold platinum silver ) are already fairly inflated.

I bought gold 3 years ago for around 420$ an oz. Today it's going for around $900 an oz and it's come down from nearly $1000.

Still Mort Zuckerman ( billionaire editor of US news and world report ) and others are claiming the coming recession will be the deapest since the great depression.

[JMS]

Gold... It almost always goes up.

But gold is more than doubled in value in the last three years and is at record highes now..

I think commodities are still good.... silver perhaps... even copper, or zink....

invest your 2k and get a couple of tons of zink.

[dcnativenerd]

FUR!

Sorry, bad pun. I haven't the foggiest idea.

[A Walton]

If you don't like the financial sectors - you can buy a 200% inverse of that sector in SKF

If you think that the dollar is going to continue to go down buy gold in GLD

You should also be invested in Energy and Alt energy.

This is a very simple investing strategy for the current market. Things change fast and I stayed at a Holiday Inn Express last night.

[Thiebear]

I doubled my 401k to 12%. I figure this is my chance to buy when its low.

Everything else is the same..

[PleaseBlitz]

I doubled my 401k to 12%. I figure this is my chance to buy when its low.

Everything else is the same..

Thats probably going to end up being a pretty brilliant move.

[dockeryfan]

Take the couple thousand and fully fund your ROTH IRA. As for what stocks to buy etc, your guess is as good as any, but you look into SPY which mirrors the S&P. Personally, in my more risky portfolio I will be buying Bank of America. But that advice is as good or as bad as everyone elses.

[The Sisko]

*Deleted dupe post*

[The Sisko]

Much of the above is good advice....assuming this recession is like past cyclical downturns. Thing is, I don't think that's the case. I've seen a lot of downturns during my investing "career" but none where there were serious fundamental issues like this one. I worry that we may end up a similar predicament as the Japanese several years ago when their financial system went in the tank.

[techboy]

1. Long term you might be right, but I generally believe it is difficult for the average person to time the bottom (or top), and I don't think anybody is clear that this is the bottom.

I agree. Research shows over and over that market timing doesn't work. But...

IMO it makes more sense to hold onto the money until it is clear we've reached the bottom and even things have started to come up, and then buy.

... this is market timing. How will you know when it is going back up? Are you going to wait until it's higher than before? What if it goes back down? What if it's a "dead cat bounce"? How will you know?

My answer to this question assumes that one is a long term investor. In that case, one should have a long term investmnent plan, which takes into account one's need, ability, and tolerance for taking risk, with an appropriate allocation to the various asset classes (stocks, bonds, etc.)

Once one has that, if it's correct, the correct response is to...

... do nothing. Stay the course, follow the plan, keep the allocation the same. If stocks tank, this will knock the bonds portion out of proportion. Re-balance by selling some bonds and buying some stocks. This is good, because while market timing tends to lead to buy high and sell low (one of the reasons it doesn't work... another is cost), this forces the investor to buy low and sell high.

Rick Ferri is one of my favorite investment advisers, and he recently started a thread at one of my favorite investment sites, titled These Are the Times that Try Men's Souls. Here's what he wrote:

So, you say you are a long-term investor. You say that when the markets turn down you will keep a level head and do what you know should be done. You said that you would look at your portfolio allocation and rebalance, or that you would invest more money to bring your allocation back to its target.

Well, are you? Are you rebalancing? Are you adding more money?

Or, are you taking a 'wait and see' attitude? Or maybe thinking about take a little off the table...or just get out altogether.

Guess what? If this market is bothering you to the point that you are not going to maintain your long-term investment plan, then you have no plan!. You have been fooling yourself about your tolerance for risk because it is not as high as you thought it was. And your plan is based on a that false premise. So, it is time for a new plan.

People are brave in a bull market, but it is in a bear market that true feelings come out. So, if you are not going to do what you swore you would during better times, then reduce your risk permanently. Reduce your allocation to stocks, or let the market do if for you, and do not go back to your over allocated level. Keep it at a permanently lower level. At least you will be better prepared for the next bear market.

On the other hand, if it is business as usual, then good for you. You're investing within your tolerance for risk, and you will be justly rewarded, eventually. I don't know when, or how much more we will lose between now and there, but I do know that "this too shall pass."

[PeterMP]

this is market timing. How will you know when it is going back up? Are you going to wait until it's higher than before? What if it goes back down? What if it's a "dead cat bounce"? How will you know?

Well for long term money, you just keep putting in. My retirement contribution goes in regularaly.

For other things you wait. You can wait over a year to see and still make money. What I mean to say is I don't try and say this stock (or market) has reached the bottom and now is the time to invest. Let it come up even for an extended period of time before buying in. You still make money. Even on individual stocks this works.

[techboy]

But gold is more than doubled in value in the last three years and is at record highes now..

I think commodities are still good.... silver perhaps... even copper, or zink....

invest your 2k and get a couple of tons of zink.

The problem with commodities is that at their core, they are a no-profit investment. Longest term, the real return of commodities is ZERO. They keep up with inflation. That's what the "men's suit" argument for gold comes down to. Commodities do not create wealth, like business, and so aside from temporary fluctuations, as you have benefited from, at best you break even. That can be good if you're afraid of inflation, I guess, but there are other options for inflation-protection.

Actually, commodities are worse than break-even, once one subtracts fees for trading, storage, and the like.

Of course, Modern Portfolio Theory says that an asset with sufficiently low correlation to other assets can actually improve returns overall, even with negative returns, so some financial advisors (like Larry Swedroe, another of my favorites) advocate a small part of one's portfolio holding commodities (as it is very uncorrelated to stocks and bonds), but that's filling the role of portfolio "insurance", which is very different than what the typical gold bug advocates, and requires a disciplined long term plan with regular rebalancing.

Much of the above is good advice....assuming this recession is like past cyclical downturns. Thing is, I don't think that's the case. I've seen a lot of downturns during my investing "career" but none where there were serious fundamental issues like this one. I worry that we may end up a similar predicament as the Japanese several years ago when their financial system went in the tank.

One of the features of each Bear Market are the people that think "this time it's different" (and Bull Markets, too, actually... remember when people were arguing that it was a new paradigm, and the Fed could keep things going forever?). It usually isn't.

Are things really worse than the 1970's, with stagflation, 18% mortgages, gas lines, etc.?

Taylor Larimore is another financial author I really respect (and not just for finance... he earned 5 combat decorations as a member of the 101st Airborne at the Battle of the Bulge).

Here are his thoughts, for some perspective...

IU: In these trying times, do you think it's reasonable to make tactical allocation changes?

Larimore: You are younger than I am or you might not call these "trying times." I have endured at least 10 bear markets when the S&P 500 declined 20% or more. I was eight years old when the Dow plunged 89%. My dad's restaurant failed for lack of customers, and we had to move into my grandparents' Florida home. Later, there were: World War II, the cold war, the Cuban missile crisis, President Kennedy's assassination, the Vietnam War, the Korean War, 15% inflation, hostages in Iran, Y2K and dozens of other crisis situations. Each time, the financial pundits were forecasting gloom and doom. But you know what happened? The Dow climbed from 235 in 1950 to about 12,000 today—and that does not include dividends. So, to answer your question about "tactical allocation changes" (which is really market-timing), I think the best strategy is simply to hold a broadly diversified portfolio and stay the course.

[iheartskins]

Short Lehman; Long Goldman as a hedge.

Likely too late to do merg arb with InBev/AB.

Could short Frannie/Freddie, just don't do it naked!

[techboy]

Could short Frannie/Freddie, just don't do it naked!

Coward.

Actually, I have to admit, there's something to be said for the idea of taking huge highly leveraged risks while young.

If you win, you're the next George Soros.

If you lose, declare bankruptcy, and you've got your whole life to make it up...

[iheartskins]

techboy--just a couple thoughts about your theories--I think they are pragmatic, reasoned advice for your average investor--but I assure you that there are CTAs and CPOs out there that blow the doors off the bar with their performance, some with relatively low volatility.

IMO, it's all about how you execute your trades (or really, how you trade volatility in the market).

However, most, if not nearly all, of us lack the expertise to do it well, and for that reason, you're advice is here (as usual) excellent.