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After a barrage of bad news -- a disappointing move by the U.S. Federal Reserve and a couple of really bad days for the world's key stock markets last week -- it would be understandable if you wanted to dump all your investments, stick the cash in a duffel bag, and move to the hills.
As an investor, that would be the biggest mistake you could make, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
Although Fitz-Gerald is anticipating the whipsaw volatility to continue - and believes U.S. stocks are in for a particularly tough stretch - he's telling investors to stay invested if they can, stick with a solid game plan, and look for opportunities as they develop.
In fact, there are eight "mini-strategies" that investors can take that will let them navigate this near-term volatility, survive even a deep market downturn, and remain in the hunt for wealth-building, long-term investment profits.
"The key is remaining flexible and focused," notes Fitz-Gerald. "Remember, even the strongest trees bend in the wind."
On Wednesday and Thursday the Dow Jones Industrial Average lost 675 points, to 10,733.83, a 5.91% drop. The Standard & Poor's 500 index fell 72.43 points, to 1,129.56, a 6.03% drop.
Last week's skid was just the latest episode in an erratic market that has seen the Dow zig-zag to a 16.21% loss from its peak of 12,810.54 on April 29. The sell-off spilled over into markets in Asia and Europe, and Fitz-Gerald says the pain is far from over.
He believes that key U.S. stock indices will re-test their lows of March 2009. If you've blotted those details out as a bad dream, we're talking about a stock-market bottom of 6,547.05 for the Dow and 676.53 for the S&P 500.
That put the Dow 7,617 points below its all-time high of 14,164 reached in October 2007 - a 53.78% drop. And the S&P's 56.8% decline knocked the index down 889 points from 1,565.15.
Investors should:
As an investor, that would be the biggest mistake you could make, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
Although Fitz-Gerald is anticipating the whipsaw volatility to continue - and believes U.S. stocks are in for a particularly tough stretch - he's telling investors to stay invested if they can, stick with a solid game plan, and look for opportunities as they develop.
In fact, there are eight "mini-strategies" that investors can take that will let them navigate this near-term volatility, survive even a deep market downturn, and remain in the hunt for wealth-building, long-term investment profits.
"The key is remaining flexible and focused," notes Fitz-Gerald. "Remember, even the strongest trees bend in the wind."
A Hint of What's to Come
U.S. stocks started to skid in earnest Wednesday afternoon, after U.S. Federal Reserve policymakers announced an "Operation Twist" economic-stimulus strategy. The strategy wasn't well-received by investors, and the central bank may have exacerbated investor angst on a worldwide scale by stating that it was worried about global growth.On Wednesday and Thursday the Dow Jones Industrial Average lost 675 points, to 10,733.83, a 5.91% drop. The Standard & Poor's 500 index fell 72.43 points, to 1,129.56, a 6.03% drop.
Last week's skid was just the latest episode in an erratic market that has seen the Dow zig-zag to a 16.21% loss from its peak of 12,810.54 on April 29. The sell-off spilled over into markets in Asia and Europe, and Fitz-Gerald says the pain is far from over.
He believes that key U.S. stock indices will re-test their lows of March 2009. If you've blotted those details out as a bad dream, we're talking about a stock-market bottom of 6,547.05 for the Dow and 676.53 for the S&P 500.
That put the Dow 7,617 points below its all-time high of 14,164 reached in October 2007 - a 53.78% drop. And the S&P's 56.8% decline knocked the index down 889 points from 1,565.15.
The Safety Strategies to Embrace Now
Worries about a decline of that magnitude could make the market sidelines seem like alluring real estate. Instead of cashing out, though, Fitz-Gerald says investors should follow these eight guidelines, while keeping an eye on their long-term investment goals.Investors should:
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- Stay in the Game: With such a dour near-term prognosis, it might be tempting to bail out of stocks indiscriminately. Do so at your own risk. Between 1928 and 2010, if an investor missed just the best 1% of the market days, the annualized return plunged from a positive 4.86% to a negative 7.08% - a differential of 12.94 percentage points. As Fitz-Gerald likes to say, "you miss 100% of the shots you don't take. Staying in the game if at all possible always has been, and always will be, the pathway to profits."
- Take What the Market Gives You: Bull markets aren't the only places you can make profits. The key is being nimble enough to recognize that the tide has changed. Last week, for instance, before gold began its plunge, Fitz-Gerald used "put" options in his Geiger Index advisory service to set up a trade that would profit on gold's expected near-term continued drop. "Everybody knew gold was going higher so it seemed reasonable to me to take the opposite side of the trade" noted Fitz-Gerald.
- Consider Alternatives: An example of other profit opportunities right now involves commodities - most notably gold and oil - which are worth buying on pullbacks (like we're getting now). These alternative assets will help preserve the value of your portfolio as the markets rollover or stagnate. B oth should accelerate dramatically when the world economy recovers, particularly as the U.S. dollar and e uro realign against the yuan in the years ahead. China and India, for instance, have both dramatically increased their resources purchases in recent years.
- Think Globally: The conventional wisdom used to be that you'd put 5% of your portfolio into "foreign" stocks. It's a new ballgame now, and some advisors say the right number is actually 30% to 40%. One way to achieve this objective is to put new money to work in so-called "glocal" stocks ( globally recognized brands with localized focus), with fortress-like balance sheets, diversified rev enue and experienced management. One recent study found that foreign sales accounted for 46% of overall revenue for S&P 500 companies that report sales from foreign operations - up from 30% just a decade ago. And some think that number is understated.
- Sell Strategically: C apture profits and protect your capital using "trailing stops" that are gradually ratcheted up over time. This will help you raise cash ( which can be used to buy into the rebound when it eventually happens) without the emotional turmoil that causes most investors to make rash decisions that doom them to years of sub par profits.
- Hedge Your Bets: Use specialized inverse funds to hedge downside risk that will accompany the rollover to the downside and rack up significant gains at the same time.
- Deal in Dividends: Dividend-paying stocks pack a punch - no two ways about it. A Tweedy Browne Fund Inc. study of the cash payouts concluded with this stunning statement: "Over the past 100-plus years, an investment in a market-oriented portfolio that included, most importantly, reinvested dividends, would have produced 85 times (our emphasis) the wealth generated by the same portfolio relying solely on capital gains."
- Keep Your Pencil Sharpened: Bear markets create bargains - often lots of bargains. Keep a shopping list of the companies you hope to buy, then wade in. If market conditions remain uncertain, change up your tactics. For example, consider averaging into your position over days, weeks, or even months, to make sure you don't overpay. That can help you take advantage of lower prices while also keeping you in the game. Think of it as a form of offensive defense. "Discipline never goes out of style," Fitz-Gerald says. "your best friend right now is a carefully thought out, pre-planned investment program that helps you eliminate the kinds of knee- jerk reactions that are going to skin most investors for the third time in a decade - once on the way down, once because they buy in at the wrong time or with too much money, and once because they get left on the sidelines (again) when things eventually sort themselves out."
- Money Morning:
The Looming Bear Market: What You Can do That Washington Can't and Wall Street Won't - Money Morning:
How You Can Beat 'The Street' - Money Morning:
A Potential "Big Trade" That Will Put George Soros to Shame - Money Morning:
Three Ways to Slash Your Risk Despite the Negative Investing Outlook - Reuters:
Market's 3 percent fall suggests deepening worry - Rick Ferri:
Going Foreign With the S&P 500. - Tweedy Browne Fund Inc.:
The High-Dividend-Yield Return Advantage.
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Great advice if you are a sophisticated trader. However if you are the normal somewhat literate investor who has been stung badly more than once n the last 10 years than you read a guy who says we will test the march 09 lows, why would you want to be in this market? thesame old mantra of missing the 10 best days what about missing the 10 worst days? Now thats winning. Its a tough game and most I know would take 4% tomorrow if you could keep your capitol.
For an expert like you seems very easy to track or follow the market with all your "tricks".
I gained panic and sold 95% of my stocks loosing about 20% of my principal.
Í prefer to wait and see. Expect another bull market and get in.
Meanwhile I rtemain cash.¿what do you think?
Why dont you make a comment about Bank of America and MLynch affairs?
Rgds
This Federal Reserve "Operation Twist" you talked about is a good old fashioned
"Highway Robbery" by those who have the power to manipulate the markets for their own gain.
Why don't you spend your article explaining to your readers how that one works, if you really want to
help them. Its the same pattern over and over. They create a crises, which leads to a bubble, then another crises to pop it. With media confusion and propaganda at their disposal, they simply buy or sell
as the market crashes or booms, making money on both ends. Looks like the Gold and Silver Bubble
are now a cash bubble. As soon as one bubble bottoms, these tycoons will ride the profits up on the next one and their tons of wealth help it along. When are we going to take these crooks to jail, so the average investor can do just that, invest ????? Don't forget about all the econ o-wizzes, who change the rules without telling anyone. In the name of market stabilization, the whole system has become a giant casino with the house keeping you from cheating them while they rake in the profits from you.
Won't anyone tell the truth out there ?
Michael
trying to follow you newsletter garus is like pushing cooked spaghatti up a hill. when you are zigging I find myself zagging and vica versa. why do I waste my time?
Well fellas, here's something different to think about. If you are "retirement safe", there's no point in trying to figure out this Kooky market. You'll spend too much precious time at your computer… and you may be biting into your cash reserve. Make believe you lost some serious money which you counted on but didn't really lose. You stopped betting before it happened! So what if you didn't
earn those extra bucks which you you had your eye on. You traded a daily period of angst for one of peaceful hours on the golf course, the swimming pool or the tennis court. How much is that worth?
I buy very large quantities of growth stocks in energy and technology, but "surround" these with a lot of sure with consumer defensives, and my entire portfolio"collection" consists of high paying dividends. This way when the portfolio goes south there is always a large group of holdings to counterbalance the "group". This is about the only guarantee one can know for certain they are going to get in these times of volatility. No one can say exactly how Mr. Market will behave on any given certain day – at least short of what the "genius" Wall Street analysts can forecast – about stock's short-term and long-term performance so this is a more reliable investment decision making approach. The article doesn't mention anything about intrinsic value (which is kind of surprising). This is very important to know as the intrinsic value is the point of when a stock has reached its peak value thus making it an attractive opportunity to sell all or part for a new "buy low" equity. I do agree with the writer's apparent premise, which is that successful investing depends on ones' pursuit of a strategically thought-out and praciticed of a steadfast, continuous and uninterrupted investments pattern. For example, Buffett does this through researching companies with good profit margins and growth potential even though they are considered way out of favor. I might add it does not hurt for serious investors to get some professional investment advice. We seem to think frequent trading through Ameri-trades computerized models can give us the most revealing opportunities. However, "machine investing" is the most habit-forming kind of short-term investing which is tantamount to gambling! This in turn is the major contributing factor to the creation of high "peaks and valleys" of the daily trading charts. Looking ahead, then, get your portfolio filled with well-know dividend generators – mainly in consumer protection – and as your holdings become closer to their intrinsic levels, then make decisions to trim or sell-off, keeping in mind you must do extensive research and consultation for new opportunities that ultimately can and ought to become one's more current holdings. And don't only look to DJIA companies since there are a whole lot of types and sizes to pick from, and thus the job of investing successfully can become rather overwhelming unless you have professional support to help you tailor a portfolio that is reasonably structured within your risk tolerance level.
Dear Money Morning readers;
There’s nothing an editor likes to see more than a story that grabs a lot of eyeballs. And that’s just what this story managed to do.
This piece – “Eight Ways to Survive a Stock-Market Crash” – generated a lot of interest, and enjoyed tremendous readership.
It also generated some interesting comments, a few of which really I have to say that I found to be really puzzling.
Just to recap … in the story above, Associate Editor David Zeiler interviewed our chief investment strategist, Keith Fitz-Gerald, who quite articulately detailed eight strategies that would help investors survive the lousy market conditions that we currently face.
In newsroom parlance, this is what is known as a “straight service” piece. It’s actually a fairly sophisticated investment strategies story, but we craft and publish a story like this purely as a service to readers. It’s as if we’re saying “we know these markets are confusing as hell, and are driving some investors to make major mistakes. We care about our readers, want them to avoid these mistakes, and want to give them some strategies that will help them navigate this stretch.”
I’ll admit right here … I’m a big fan of Keith’s. And I think that he and the writer really did a nice job here providing readers with some easy-to-deploy strategies that will counter some of the near-term volatility – and set them up for some nice long-term gains.
Not surprisingly, most of the feedback we received was very positive. But several readers posted comments that, in essence, claimed that these strategies were only for Wall Street pros, and were too tough for Main Street investors to follow.
I couldn’t disagree more.
Virtually all of these – at their core – are pretty basic strategies. There is a bit of “value-added” included with each – primarily the result of Keith’s experiences, perspectives, and insights.
None of these are out of the reach of the typical, somewhat-experienced retail investor.
In fact, Money Morning subscribers would be wise to re-read this story: If you follow these strategies, and adapt them to your portfolio, objectives and current investment plans of your own, you’ll find that you’re better able to navigate the current markets – and that you’re on track to amass more long-term wealth than you ever expected.
Thanks again for reading. And thanks for taking the time to comment – we welcome any and all thoughts from our readers. And, as you can, we try to factor what you say into our story planning and story selection – wanting to deliver what you need.
Very respectfully yours;
William (Bill) Patalon III
Executive Editor
Money Morning and Private Briefing