Today I've asked the team from The Correct Call to teach us a bit about how we can weather the current storm we're in. Just this morning, I heard of another "mini-Madoff" that took millions from hard working Americans in the northeast! So what can we do protect what we've got??
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There have been some alarming descriptive phrases used in the news headlines lately. "Crash," "Massive Catastrophe," "Spinning Out Of Control,"... are these Chicken Little warnings? Or, are the dark clouds gathering again to unleash another fierce financial storm?
The truth is, we don’t pretend to know one way or the other. It is vital to remain objective and take what the market gives you. The Correct Call takes a top-down approach and sees what the market is saying and invests accordingly. We are not afraid of negativity or overwhelmed by optimism. As a result, we believe there are always great opportunities out there no matter the environment.
That being said, many of our readers have asked us, “what can I do to protect my portfolio in this market?” So we did our research looking for investments that have little, no, or negative correlation with US stocks; meaning, investments that don’t necessarily move in tandem with stocks. They have their own free will, so to speak.
We have identified 7 things you can do to protect your portfolio RIGHT NOW!:
1. CASH is KING:
Don’t be afraid to move some money to the sidelines. Selling losers makes a lot of sense. It can take years for many of these companies to recover. We are still waiting for many of the tech darlings of the late 90’s and early 2000’s “to get back to what we paid for them.” How long before Qualcomm gets back to $88, let alone $1000.
Some of the things you should be looking at when determining which of your stocks are cash candidates include:
Earnings Misses
Bad News
Management Shake-Ups
Deteriorating Fundamentals Relative to its Peers
Desperate for an Infusion of Cash
Once you have decided which stocks make sense to sell, you might consider matching your loses with some of your gains. Don’t be greedy, eventually today’s winners will give way and be replaced by the next hot thing.
When the markets - be it Real Estate or Stocks - hit rock bottom, you will need cash on hand to take advantage of these bargains. It is in these discarded investment misfits that triple digit returns will be found.
2. BUY GOLD:
Investors worried about mounting losses can possibly stem the tide by adding Gold to their portfolio. According to a study titled, “Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold” by Dirk G. Baur and Brian M. Lucey, gold is an “ideal venue to park money during periods of uncertainty.”
Their analysis found that in the US, Gold and stock returns are negatively correlated and that Gold acts as a hedge at all times. That means when stocks go down, Gold usually goes up.
Conservative investors should buy iShares COMEX Gold Trust (IAU), streetTRACKS Gold Trust (GLD) or iShares Silver Trust (SLV). More aggressive investors might consider owning individual stocks or DB Gold Double Long ETN (DGP). DGP’s objective is to give its owners twice the return of Gold’s price changes. With DGP, if Gold moves up 5%, investors can expect see a return of 10%.
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I agree that cash is particularly good at this juncture. Gold and silver are not only "safe", but offer significant increasesin valuations. Covered calls are very effective in times of low Vicks,(volatility), but I also employ the use of selling puts on shares I would like to own---particularly at low prices and at the discount the sale of puts offers. I like Abb, Chk, Nly, Slw,and GG as put opportunities. You presereve capital, reduce risk and in a market that is at or near its lows,enjoy additional income. Check with your financial advisor. Herach.
Brad,
This is a very helpful article and thanks for sharing. Having your money in short term Treasury Bills of less than one year maturity is probably quite a cautious move and while the return will be poor, at least they capital is reasonably safe.
Gold is the key asset and especially physical gold. It is becoming harder to get your hands on the yellow metal and as paper currencies are further devalued, gold will rise much further.
It seems amazing that COMEX gold futures are still taken seriously when we have seen gold in backwardation recently which tells you what people out there are thinking.
If you go for the gold futures then just take delivery of the physical metal at the end of the contract. Eventually all the strange games will be flushed out as the COMEX warehouses run out of gold. Then gold will head for the stars.