1. It’s a time to lay low. Invest much more selectively. Take less risk.
2. It’s a time to build cash. If we’re right about deflation, cash will buy you great bargains as soon as the deflationary forces have exhausted themselves.
3. It’s a time for income — ideally steady, recession-proof income.
4. It’s a time to hedge. To the degree that you continue to hold special situations that we feel will buck the trend, hedge against the downside risk in this new environment with investments that are designed to go up while these markets are falling.
5. It’s a time to look forward to the next major bargain-hunting opportunities. The more markets decline now, the better the bargains will be.
6. It’s also a time to be patient. Don’t expect the declines to be over in a day or a week or even a month. It could be several months or more.
One word of warning: When we do hit bottom, buying will require courage. Once we get down there, the negative commentary about the U.S. economy, gold and oil, India and Brazil, mining and agriculture … will be deafening; and the negative sentiment, downright depressing. To get to the other side and take full advantage of the new opportunities, you will need to walk calmly and resolutely across the aftermath of that bloody battlefield.
Remember: There are also major profit opportunities during a storm — both the special situation investments that go up despite the broad market declines and those inverse investments that go up because of the market declines.
Also remember: No market goes straight up or straight down. So even in the midst of sharp declines, there are bound to be some major intermediate rallies — opportunities to make any needed adjustments in your investment strategies. With investments that you want to buy, wait for days when the price is down. With investments you want to sell, wait for days when the market is up.
And if you are working with a money manager, make sure he is experienced with both up AND down markets, deploying appropriate strategies for each, based on your personal investment goals.
Best wishes,
