No, I think the latter applies to the stock market in general.
Haven't heard of the Health Care plan.
Here's another
PAUL B. FARRELL
Six strategies for a new bear
'Planet of the Apes' poll triggers review of markets on edge
Last Update: 7:42 PM ET May 22, 2006
ARROYO GRANDE, Calif. (MarketWatch) -- You and I invest in a world where truth is a rare commodity, where guidance from our leaders is all too often misleading propaganda. Today we are not merely skeptical of what we hear, distrustful of everything, fearful of some unknown next shoe dropping ... we doubt ourselves, question our judgment.
In our recent "Planet of the Apes" poll, readers gave the reason for this pervasive distrust: Greed is eroding credibility at the top. See previous Paul B. Farrell.
But so what! Savvy investors remind us that "greed is good" is Wall Street's motto today and always will be. Scandals and reform movements come and go, bulls and bears come and go, but savvy investors know greed is part of the game, they accept that most leaders are not only greedy, "more really never is enough."
Instead, the savvy investor asks a different question: "How do I protect myself from their greed?" They know house odds always favor insiders. So let's review six alternative strategies that you better consider to prepare for the bear market many experts predict. Six strategies to consider if you're looking long-term for a way to survive and thrive.
The recent "Planet of the Apes" poll was about identifying the biggest skimmers, the insiders siphoning the most money off the top of Main Street investors' returns.
In our poll, the Giant Apes ("Rulers") and Orangutans ("Puppet Leaders") were the biggest offenders in this order: Corporate CEOs got the most votes. They were the greediest. Next came Washington politicians, then Wall Street's investment bankers and mutual fund company owners. Those four categories received two-thirds of the vote as the worst skimmers, the greediest, and least trustworthy.
Reader response confirms the widespread public impression that skimming is pervasive. And as in the "Planet of the Apes" movies, humanoid investors are not only at the mercy of the apes conspiracy that controls America's financial system, there is very little that investors can do to change the system. In fact, the system has grown stronger despite the corporate and mutual fund scandals and reforms of the past five years.
So, let's answer the big question, "what should I do to plan for a bear market?" Not everyone has the same risk tolerance, so you have to pick a plan that fits your personality. Here are six possibilities to consider:
Strategy 1. Get out now and go to cash
Remember the 2000-2003 bear market, the massive 43% loss of market cap and a brutal tech crash. So once again, remember Warren Buffett's No. 1 rule of investing: Never lose money. Maybe use the cash to pay down mortgages, pay off debt.
Strategy 2. Ultra-conservative fixed-income option
Back in early 2000 a number of savvy investors saw high price-to-earnings ratios as a clear signal to bail out and hide out in bonds, bond funds and money markets. It worked. In the 2000-2003 bear, one of the portfolios I reviewed returned about 10% a year while the stock market was crashing -- a portfolio allocating a quarter each in short-bonds, intermediate bonds, inflation-protected securities and government savings bonds.
When to get back in stocks? Maybe never. Maybe "better safe than sorry." After all, the market is still below where it was six years ago!
Strategy 3. The entrepreneurial spirit
OK, so sitting on cash doesn't appeal to you and neither does a lot of dull, boring bonds. You want your money working. Take a cue from "The Millionaire Next Door." Turns out most millionaires don't become millionaires by investing in the stock market. They create equity one of three ways: Building businesses, developing real estate or as professionals. They're entrepreneurs, they work for themselves. See story on whether independent consulting is right for you.
The other 96% of Americans who don't become millionaires will retire with relatively small incomes from IRAs, 401(k)s and Social Security.
Strategy 4. 'Mad Money' stock trader
Hyperactive teenagers on speed are hard to take, especially if you have the temperament of a long-term buy-and-hold investor. But for some few investors, the "Mad Money," active stock-trading alternative may be best. Just remember, for successful traders, this is a full-time job. They study market psychology, and know the tricks of playing in a bear market as well as riding the bull.
Most of all, remember that the "more you trade the more you lose," because commissions, taxes and expenses will eat up much of your returns.
Strategy 5. Hot commodities trader
One of my readers tells me he put $10,000 in gold a couple years ago after reading my earlier columns on the two-decade negative returns of gold. I was his contrarian indicator. Now he claims his gold is worth $150,000. Hindsight is great, but I say the risks were high then, and still now.
Betting on commodities is a volatile, highly-leveraged crapshoot. Witness last week's sector sell-off triggering a flight to safety. But, if you've got the guts for high-risk volatility, and you're ready to make a full-time job out of being a commodities investor, review my earlier column. See previous Paul B. Farrell.
Otherwise, satisfy your anxiety by adding a very small percentage of commodities to your asset allocation.
Strategy 6. Relax and do nothing
Yes, this is the omega and alpha of all long-term investment strategies, the ultimate "Plan A." The one that works for most passive investors. If you already have a well-diversified portfolio, you're ready for a bear market (or a bull).
Back a few months ago I updated the performance of five "lazy portfolios" we've been tracking a while. For example, during the bear years of 2000-2002 the Coffeehouse Portfolio beat the S&P 500 by 15% each of the three years, while the Nasdaq dropped 80% and the stock market lost $8 trillion. The Coffeehouse Portfolio is proof you can win in both bull and bear markets, with no trading, no rebalancing, no tinkering with allocations. See previous Paul B. Farrell.
Strategy 6 is the best bet for almost all investors, especially passive investors. But like I said, you have to pick a plan that works for your risk tolerance and personality type. Maybe good fortune will smile on you, like with the guy who thinks I'm his contrarian indicator, who doesn't care if the playing field isn't level, who loves gambling and betting against the house at this casino. If that's your way as an investor, please, be my guest,
2006-10-16 13:53:49
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answer #1
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answered by dredude52 6
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