The movie "2001, A Space Odyssey" first appeared many years ago. I wish HAL (the on-board computer in the movie) had possessed enough foresight to forewarn us all about market conditions just prior to entering the year 2001... <g>
Okay, what do I see for the year ahead?
I see the technology bear market continuing, and I see continuing problems for NASDAQ stocks, because of the NASDAQ's high concentration of tech stocks within its listings. I see the bear market spreading to sectors and industries other than tech as well, given a predicted slowdown in GDP and other measurable indexes. I see the Fed attempting to avert a hard landing by easing interest rates in the first quarter, but it's too little, too late. I see a large slowdown in consumer spending, which most definitely will have adverse affects on the markets. Summed up, I'm not looking for the bull to reappear until the latter part of 2001, if even then...
I would steer very clear of small cap investments for now. Traditionally, they are the last group to recover in a bear market and they usually suffer the most pain in a prolonged downturn. The risk/reward ratio is too speculative for the average investor during bear market conditions.
I would also avoid most IPOs, simply because the risks are far too great (in a bear environment) for the average Joe to undertake. IPOs would be suitable only for the most aggressive of investors.
I'll look for GAARP (growth at a reasonable price) stocks and/or value stocks. I'll play it defensively as well. That is, I'll diversify (much more so than in a bull market) and I'll consider so-called defensive stocks, such as those found in the food sector or the drug sector. I'll also take a second look at stocks with a relatively good dividend yield. There's nothing wrong with dividends, and they look especially good during times when long term capital growth is at a standstill or even worse, declining.
I'll keep a substantial portion of my portfolio in liquid cash investments (CDs, Money Market Funds, etc.) and I might try some investment grade bonds, or bond mutual funds. The market will recover some day, and I want to have sufficient cash reserves available to be able to buy back in when the investment landscape looks a tad better. I'm not likely to catch a market bottom, but I'm also unlikely to miss the entire recovery, when it comes.
What will you do?
KJC |
