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    Tuesday, November 4, 2008

    What should investors do?



    As I've said many times recently, if I were an "investor" with a retirement account looking long term (several years), I would sell into rallies. In the very short term, we could see more strength in stocks, but that is your window. I prefer to manage accounts for the time frame with the most opportunity and best risk/reward. The best part of this approach, is that I avoid many of the drawdowns caused by buy/hold, or "value" investing, which gets you in too early. If I were to invest for a time frame of several years, I would look to commodities. The recent strength in the $USD should subside, giving commodities some room on the upside. The investor would want to buy the grains and metals into intermediate term dips, in my opinion.

    With regard to equities, I think Mish puts forth something everybody should consider. The article is excellent, and even if you don't agree, it balances the recent bullish calls for stocks. Remember that we all know stocks are "due" to rally, but most of us are looking to take profits on that bounce, and that does not bode well over the next few years. If an investor is prepared to hold through the bumps, there is still no reason to get involved today. I can promise it will take a long time for stocks to bottom and truly start higher, even if we're already seen the absolute lows.

    2 Comments:

    OpenID thelonelytrader said...

    I'm cautiously optimistic -- I don't think the current downturn will last five years. I don't think we'll see the runup we had from 2000 to 2006/07 -- that was a bubble, not a proper bull market -- but I also think there will be good investment opportunities in key sectors going forward. And I think the majority of the safer opportunities will be found in the US. Long term -- five to ten years, I think I would prefer to be a buyer of large cap companies with good strategic positioning, but only in particular sectors. Short term, six months to two years, I think I would do what you advise -- sell into rallies of companies that will benefit from a shift in consumption (i.e. Walmart, or any "discount" retailer, etc.)...but hedged somehow to protect myself from the volatility.

    I'm not interested in dividend plays as much as the talking heads are -- but then I don't know enough to know any better. I think dividends will fall of considerably when the economy really feels the pain of the contractions to come. Are there any yield plays worth looking at?

    I know you aren't buying, but if you were, is there *anything* that would be on your watchlist?

    November 11, 2008 11:11 AM  
    Blogger itrade4real said...

    I think the difference in our opinions is not the direction of stocks, so much as our expected hold times. I really can't see anything that I'd buy today, to hold for 5 years, as we'll have some of the best (sharpest) rallies ever seen. However, to hold on for more, after these rallies, is fighting for crumbs, with lots of potential to give it all back, IMO.

    Also, I'll be on the long side all the way up, due to my style, but I won't necessarily hold all the time. Of course I'll miss some of the move, but I can only trade my perceived risk/reward.

    I guess if my only option was to buy and hold, I might look to healthcare, but even that industry's best days are behind it.

    I might also look at miners, but I don't trade them much.

    Keep in mind, it's just one guy's opinion! Good luck.

    November 11, 2008 2:41 PM  

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