Wednesday, March 11, 2009

Bear Market Maxims

Five Bear Market Maxims was published on July 2, 2008 by Andy Kessler on Tech Ticker, a day the Dow closed at 11215.51. At the time, no one expected the Dow to fall as far as it has. However, many of the points in his video are still appropriate today, as the bear market enters its eighteenth month.

Here a summary of Mr. Kessler's five points:
  1. It's not what you own going in, it's what you own coming out. Figure out what sector(s) are going to lead the economy out of recession. It probably won't be the sector that led the previous bull market.

  2. Don't be shy about concentrating your portfolio. Index funds go down in bear market. Be a stock picker. For example, there were stocks that were up for 2008. Do your homework, it's important to be right when choosing individual stocks.

  3. Beware of cheap stocks. Sometimes the best stocks appear the most expensive, because people are willing to pay for them, even at a premium.

  4. Successful businesses are about making the scarce abundant. Find businesses that will create significant economies of scale in the future, which will create even bigger markets.

  5. No one rings a bell at the bottom of the market. Be well positioned when the market turns. We won't know the bear market has ended until months after the bottom.

Overall, I think these adages have merit. In our case, we've been slowly tricking in money to buy shares of stocks that we think will be successful in the future economy, specifically Amazon (AMZN) and Monsanto (MON), which I've written about in my Bottom Fishing Portfolio post

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

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