Article

Buying in a bear market

Or how to avoid market jitters and still make some money while you’re at it
Issue: Feb, 2010
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For investors in the US stock market – as many people are, whether they know it or not, via pensions and mutual funds and so forth – the month of January was a pretty bleak one, with a 3.5 per cent drop across most major indices, with even Apple taking a hit despite a new media-defining product. So, with the rampant rise of the market in 2009 now looking like merely the start of one big correction, what are the strategies for February? Here’s four:

 
1. Fast-moving consumer goods
No matter what the financial environment, people still eat and wash. And in America, they might actually eat more when times are tough. So while consumerism, or lack of it, may be stripping the value of big-ticket items such as cars, computers and homes, there’s always room for a six-pack of Coke in the fridge and a fresh tube of toothpaste in the bathroom. Proctor and Gamble rarely does poorly in a recession.
 
2. Currencies
Unlike stocks, currencies are a relative game. One can only go up against another, and the money is made in finding the biggest divergence. With the Euro zone and the British pound stuck in the same hole, the US dollar might be worth backing for the next six months, until inflation kicks in.
 
3. Beware the 
bond bubbles
Last year in the States, for every dollar that went into equities, 13 went into bonds. That means they’re overpriced and over-performing. As money returns to stocks and equities, expect bond yields to fall sharply. Just don’t get caught.
 
4. Don’t do nothing
There’s always money to be made in a bear market, but a hands-on approach is required. For instance, don’t ignore a sliding market – what goes down might not necessarily go back up, certainly now the stimulus cash is drying up.
 
Take action to move your money from losing sectors to ones with market-beating returns – like fast-moving consumer goods or emerging markets. Of course, if you’re that fearful of the market, it might be an idea to cash-out, buy a fixed-return bond or savings plan for a year and relax while the market sorts itself out. You certainly won’t get rich, but you won’t be visiting the poor house, either.