December's rally gave way to January's collapse. Will this bear market never end?
Actually, a better question is this: What are the best investment opportunities right now?
We can't know when the bear market will finally surrender to the next bull. But we can have confidence that some strategies will be successful in the coming months and years, and that we can find at least some of these winning ideas.
Submitted for your approval are five strategies that fit today's circumstances. They amount to four "do's" and one "don't." I kicked some of these ideas around last week at The World Money Show in Orlando, Fla., with attendees and other speakers, and they resonated with those I spoke with.
I also got considerable help from Sam Stovall, the chief investment strategist at Standard & Poor's. He has done research on many of these ideas, so I can back them up with numbers.
None of these involves particularly exotic investments or complex trading schemes, so they'll work if you're fairly new to managing an individual retirement account or a 401(k) portfolio, or if you're a savvy trader with multiple accounts. I think these five strategies can form the basis of a very successful investment portfolio for the next year and beyond.
1. Stick with equities
The current stock market is the worst since the Great Depression, and the bottom will be found only when we run out of people eager to sell stock -- when the last optimist sells out and swears "never again." That is, obviously, the absolute worst time to sell, because the market always gets better after that."I think of that great line from Charlie Brown: 'I have a feeling that when my ship comes in, I'll be at the airport,'" Stovall says.
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You and I don't want to go to the airport; we want to keep our oars in the water. Since 1957, Stovall says, each new bull market recovered 29% of the total lost in the prior bear in the first 40 calendar days. About 46% of total losses were earned back in the first 12 months.
Remember this rule of thumb: If you wonder whether you should go to cash in a market downturn, it's already too late. The optimal time to go to cash is when you are absolutely convinced you cannot lose money in stocks. The optimal time to buy stocks is when it looks like the worst idea ever.
2. Love the most unloved
In normal markets, good performance has a sticky quality; there is a well-established trend toward what is called "consistency of performance." One year's winners tend to do well the next year.But in new bull markets, the leaders tend to be the groups that had suffered the most in the previous bear. According to Standard & Poor's, those groups over the past 12 months have been aluminum, automakers, casinos and gambling, consumer electronics, diversified metals and mining, industrial-real-estate investment trusts, investment banks and brokerages, multiline insurance companies, thrifts and mortgage finance, and tires and rubber.
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A 'lost decade' for stocks?Many are calling the past 10 years in the stock market a 'lost decade,' but Tim Middleton has a different perspective.
All went down 80% to 91% in the bear market, as of the Standard & Poor's 500 Index's ($INX) low of 752 on Nov. 20.
That was the lowest close so far in this bear market. The S&P 500 ended last week at 869.
Four of those 10 subindustries are in the financial sector, which is easily targeted through mutual funds and exchange-traded funds, such as Financial Select Sector SPDR (XLF, news, msgs). The other subsectors are harder for fund investors to target, though you can capture some of them with a fund like Industrial Select Sector SPDR (XLI, news, msgs).
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