Don’t We All Want To Know The Best Ways To Invest Money
What is it? Is it a long broad bull market – meaning that there is a climb upward in the stock market over big blocks of time? Or, is it a long broad bear market – demonstrating just the opposite?
Starting here is key – because ‘different strokes for different folks’ – and markets too.
There are three times in the market. Either it is going up. It is going sideways. Or, it is going down. Here’s the problem. Wall Street has only taught you what to do when it is going up.
Going up is ‘buy and hold’. Wall Street thinking has no means of organizing the sale of your stuff in declining markets – it just doesn’t think about that.
Here;s a historical example: By March 2009 – after a long broad bear market, big Wall Street firms like Fischer Investments (who manages $45billion of investor money) – and Merrill Lynch, of the same elk, still were fully invested in stocks – when the market had dropped 40% for the year. Likewise, the Nation’s 25 largest mutual funds were down 55.1% (worse than the market, hello) – because they all simply don’t know how to sell.
While Wall Street thinking was holding on to stocks and recommending them – the stellar ones had the following record (for illustration of a one year period to March 2009).
- Johnson & Johnson: – 13%
- Exxon Mobil: – 20%
- Proctor & Gamble – 26%
- Lockheed – 29%ï
- Hewlett Packard – 30%
- Occidental Petroleum – 34%
- United Technologies – 38%
- Merck – 39%
- Target – 45%
- Honeywell – 48%
- Caterpillar – 61%
- General Electric – 69%
- AFLAC – 72%
- Citibank – 88%
- General Motors – 92%
Most of the Money Managers and Mutual Funds owned and held these stocks for the ride – a long, long ride…down.
How would you have made money on these over this bear run? – you would have had an inverse position – a ‘short’ position – totally new thinking.
Now, if we have a take away lesson here – it’s that what has conventionally been taught about the markets isn’t enough. The objective – is to run your investments like a business and make a profit at the end of the year – so clearly, sitting on one’s hands and going down with the best of the breed was not it. What is, you ask?
The most noble of the money managers, stayed with their bull market rules – and did not have any bear market rules – in this long broad bear market decline leading into 2009.
So: Heads Up: First is to decide what market trends you are in – is it going up, sideways or down? – and you know this by looking at a chart of the S&P (the Standard & Poor’s 500 Index) or the DOW (the Dow Jones Industrial Average). Both can show you the character of the market.
The market is like a teenager. You first have to decide what kind it is – likely to go in some wild direction or not – and then fit your strategy. Wrong strategy for the right kid can backfire.
So, since Wall Street hasn’t come up with bear market rules of success – let’s add these to the repertoire for a quick flip of our thinking when a bear market presents itself.
Nine Bear Market Success Laws:
♣ Protect Principal – Second, Make a Profit.
♣ Use YOUR Common Sense – And Trust Your Abilities
♣ Invest Only In Very Liquid, Heavily Traded, Investments – That You Can Jump Out Of Quickly
♣ Stay Very Flexible – By Also Expanding Your Investment Choices
♣ Find The Right Investment – Either Special Situations That Go Up In Bear Markets or Situations That Go Up In Spite Of Bear Markets
♣ It’s Only Paper – Fall In Love With Your Significant Other – Not Your Investment – If It Is Not Working, Dump It
♣ Take Profits Regularly – Don’t Count On A Magic Pill – Like a Government Bail-Out or Holding On Until The Market Comes Back When It Is Going South
♣ The Herd Mentality Is Not Where The Money Is – Have The Courage To Lead Rather Than Follow in Your Investment Choices.
♣ Fortunes Are Made In Bear Markets – This Can Be Your Economy.
If you stick with these rules – you play a new game in a bear market – and you’ll make a different mental adjustment again when a bull market returns.
In a bear market as you focus on returns ON your money – the very first priority is to keep money safe for the return OF your money.
Most lofty of secure investments are those that receive the DIRECT, first priority guarantee of the U.S. Treasury Department. Next, in second and third place, are those that have an INDIRECT guarantee, such as through a government agency, like the FDIC (Federal Deposit Insurance Corp) or SIPC (Securities Investor Protection Corp).
The market says that investors get more interest on their principal deposit for indirectly guaranteed investments and less interest for directly guaranteed investments like Treasury bills. Both are routes of safety for your money in these unusual economic times of our lives, with Treasury bills being the most secure.
So, these are choices to safely park your money in bear markets:
Choice #1: A Treasury only Money Market Fund – if it is still open to new investors.
Choice #2: A Government only Money Market Fund – which includes a mix of treasuries and other government agency securities.
Choice #3: A regular Money Market Fund – and we will be monitoring the safety of these.
What to own in a bear market to make a profit – here are six opportunities:
2. Bonds – when the timing is right. When interest rates go up (which massive debt flooded into the market will cause them to do) – then bond prices will go down. When you can buy high quality corporate bonds for ‘cheap’ – it’s the time to buy.
3. Dividend Stocks – when the timing is right. Any company that continues to pay its dividend through these hard economic, bear market, times – that shows that it thrives by making dividend payments – will be a stock to own in when the market turns.
4. Commodities –In bear markets, commodities may thrive. This is because people want to own something tangible – this includes gold/silver, oil and natural resources.
5. Currencies – In times of fear, people flee to a currency for a safe haven. The U.S. Dollar has been known as the reserve currency – and this depends upon the world-wide faith and trust in the American dollar.
6. Foreign Markets – Some do better than the American Market – such as the opportunities developing in the Chinese market. Some do worse than the American Market – such as the problems of Europe, with failing currencies and country defaults looming. These are distinctly different strategies.
This is for educational purposes – and you will want to review your investment choice, timing and exit strategies carefully to assure a return OF your money.
Inevitably, all markets cycle – and a bull market follows a bear market. When this happens – and the magic is in reading the markets to view renewed strength – then it’s time for new thinking and new market choices. When the emphasis shifts to bullish investments the following five choices could be appropriate:
1. ETFs – which reflect the growth of the overall market.
2. Fundamentally Strong Sectors – and then individual stocks in the market.
3. High Quality Corporate Bonds – for principal growth.
4. Flourishing World Wide Markets
5. Bullish currencies
So, when it’s a bear market — invest to keep your money, a return OF your money – by abiding by the bear market laws of success.